SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED September 30, 1997 OR
--------------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 OR THE TRANSITION PERIOD FROM __________ TO __________
COMMISSION FILE NUMBER 0-19333
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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 Street, Suite 3310
Denver, Colorado 80202
---------------------------- -------
(ADDRESS OF PRINCIPAL (ZIP CODE)
EXECUTIVE OFFICES)
(303) 294-0750
- --------------------------------------
(REGISTRANT'S TELEPHONE NUMBER,
INCLUDING AREA CODE)
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___
---
The number of shares outstanding of registrant's classes of common stock, as
of November 11, 1997:
Common Stock, No Par Value, 3,906,022
Series B Convertible Preferred Stock, $.001
Par Value, 18,834 shares
<PAGE>
Bion Environmental Technologies, Inc.
INDEX
PART I FINANCIAL INFORMATION PAGE NO.
- ------- --------------------- --------
ITEM 1 FINANCIAL STATEMENTS
Balance Sheets:
June 30, 1997 and
September 30, 1997 F2
Statements of Operation:
For the Three Month Periods Ended
September 30, 1996 and
September 30, 1997 F3
Statements of Cash Flows:
For the Three Month Periods Ended
September 30, 1996 and
September 30, 1997 F4-F5
Statement of Changes in Stockholders
Equity F6
Notes to Financial Statements F7-F11
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS
OF OPERATIONS 3
PART II OTHER INFORMATION
- -------- ------------------
ITEM 1-6 16-17
<PAGE>
FINANCIAL INFORMATION
PART I
ITEM 1. FINANCIAL STATEMENTS
<PAGE>
BION ENVIRONMENTAL TECHNOLOGIES, INC.
AND SUBSIDIARIES
Consolidated Balance Sheet
<TABLE>
<CAPTION>
September 30, June 30,
1997 1997
------------- ---------
(Unaudited) (Audited)
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 6,169 $ 9,232
Accounts receivable 98 5,042
Contract receivable (net of allowance
of $30,000) 56,059 67,921
Work in progress (net of allowance
of $30,000) 157,385 168,000
Assets held for resale 373,000 600,000
Total current assets 592,711 850,195
Property and equipment, net 233,001 244,824
Other assets
Patents, net 38,459 38,660
Deferred long-term contract costs 77,333 77,333
Other 8,694 11,694
Total other assets 124,486 127,687
Total assets $950,198 $1,222,706
Liabilities and Stockholder (Equity)
Current liabilities
Accounts payable $ 284,754 $ 302,820
Accounts payable - related party 18,329 29,426
Line-of-credit - stockholder 105,000 105,000
Notes payable 192,000 325,000
Notes payable - stockholders 82,171 82,171
Capital lease obligations 63,060 62,546
Accrued expenses 41,028 36,359
Accrued payroll 188,250 135,500
Total current liabilities 974,592 1,078,822
Long-term liabilities
Capital lease obligation 132,480 149,488
Deferred contract revenue 181,000 181,000
Total liabilities 1,288,072 1,409,310
Commitments and contingencies
Stockholders' (deficit)
Preferred stock, $.001 par value
10,000,000 shares authorized, 18,834
series B (September 30, 1997 and
June 30, 1997) shares issued and
outstanding (liquidation preference
of $124,330) 95,482 95,482
Common stock, no par value, 100,000,000
shares authorized, 3,840,922 (September 30,
1997) and 3,696,816 (June 30, 1997)
shares issued and outstanding 8,403,051 7,983,274
Common stock subscribed 672,819 627,822
Accumulated deficit (9,509,226) (8,893,182)
Total stockholders' (deficit) (337,874) (186,604)
Total liabilities and stockholders'(deficit) $950,198 $1,222,706
</TABLE>
BION ENVIRONMENTAL TECHNOLOGIES, INC.
AND SUBSIDIARIES
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Three Months Ended
September 30
--------------------
1997 1996
-------- ----------
(Unaudited) (Unaudited)
<S> <C> <C>
Contract revenues $ 24,837 $ 35,547
Contract costs 93,554 112,182
------ -------
Gross profit (loss) (68,717) (76,635)
General and administrative expenses 469,267 341,432
------- -------
Loss from operations (537,984) (418,067)
Other income (expense)
Interest income 14 105,130
Interest expense (22,904) (67,935)
Research and development (52,757) (34,551)
Gain (Loss) on marketable equity
securities 130 0
--------- ---------
Net (loss) $(613,501) $(415,423)
========= =========
(Loss) per weighted average share of
common stock $ (0.16) $ (0.24)
========= =========
Weighted common shares outstanding 3,773,656 1,717,575
========= =========
</TABLE>
<PAGE>
BION ENVIRONMENTAL TECHNOLOGIES, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Three Months Ended
September 30,
----------------------
1997 1996
-------- --------
(Unaudited) (Unaudited)
<S> <C> <C>
Cash flows from operating activities
Net (loss) $(613,501) $(415,423)
Adjustments to reconcile net loss to
net cash used in operating
activities -
Depreciation and amortization 12,724 4,960
Issuance of subscribed stock for
services 47,500 0
Issuance of stock for services
and interest 76,553 44,475
Change in assets and liabilities -
Contract receivables 27,421 (16,784)
Prepaid expenses 3,000 181
Accounts payable and accrued
liabilities (27,037) 29,330
Accrued payroll 52,750 32,500
Net cash used in operating
activities (420,590) (320,761)
Cash flows from investing activities
Investments in patents (700) 0
Net cash used in investing
activities (700) 0
Cash flows from financing activities
Payments on notes payable (133,000) 0
Line of credit 0 75,000
Proceeds from sale of stock 340,721 151,216
Payments on capital lease obligations (16,494) (7,815)
Proceeds from the sale of warrants 0 31,250
Proceeds from the sale of assets, net of
selling expenses 227,000 0
------- --------
Net cash provided by financing
activities 418,227 249,651
-------- ---------
Net decrease in cash and cash equivalents (3,063) (71,110)
Cash and cash equivalents at beginning of
period 9,232 118,612
------ ----------
Cash and cash equivalents at end of
period $ 6,169 $ 47,502
======= ========
</TABLE>
Footnote:
Supplemental disclosure of cash flow information
Cash paid during the quarter for interest was $22,904 (1997)
and $67,935 (1996).
Supplemental disclosure of non-cash financing activities
For the quarter ended September 30, 1997 -
Declared and accrued dividends of $2,543 for preferred stock Series B.
Converted $2,503 of common stock subscribed into 598 shares of common
stock.
For the quarter ended September 30, 1996 -
Entered into a capital lease for equipment for $69,239.
Declared and accrued dividends of $2,544 for preferred stock
Series B.
<PAGE>
BION ENVIRONMENTAL TECHNOLOGIES, INC.
AND SUBSIDIARIES
Consolidated Statement of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
Series "B"
Preferred Stock Common Stock Common
------------------ ------------------- Stock
Shares Amount Shares Amount Subscribed
-------- -------- ------ -------- ----------
<S> <C> <C> <C> <C> <C>
Balances at
June 30,
1997 18,834 $ 95,482 3,696,816 $7,983,274 $627,822
Conversion of
common stock
subscriptions
to common stock - - 598 $ 2,503 -
Common stock
subscriptions
for services - - - - 47,500
Issuance of common
stock for cash - - 123,849 340,721 -
Issuance of common
stock for services - - 19,659 76,553 -
Dividends declared,
preferred stock
Series B - - - - -
Net (loss) for the
period ended
September 30, 1997 - - - - -
Balances at
September 30, 1997 18,834 $ 95,482 3,840,922 $8,403,051 $672,819
</TABLE>
Continued below
<TABLE>
<CAPTION>
Accumulated
Deficit Total
----------- -----------
<S> <C> <C>
Balances at June 30, 1997 $(8,893,182) $ (186,604)
Conversion of common stock
subscriptions to common stock - -
Common stock subscriptions for
services - 47,500
Issuance of common stock for cash - 340,721
Issuance of common stock for services - 76,553
Dividends declared, preferred stock
Series B (2,543) (2,543)
Net (loss) for the period ended
September 30, 1997 (613,501) (613,501)
Balances at September 30, 1997 $(9,509,226) (337,874)
</TABLE>
<PAGE>
BION ENVIRONMENTAL TECHNOLOGIES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1 - Summary of Accounting Policies
- ---------------------------------------------
The summary of the significant accounting policies of Bion Environmental
Technologies, Inc. ("Company") is incorporated by reference to the Company's
annual report on Form 10-KSB at June 30, 1997.
The accompanying unaudited condensed financial statements and disclosures
reflect all adjustments (all of which are normal recurring accruals) in the
ordinary course of business which in the opinion of management are necessary
for a fair presentation of the results of operations, financial positions, and
cash flow of the Company. The results of operations for the periods indicated
are not necessarily indicative of the results for a full year.
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 its products. The Company has not yet begun earning
significant revenue from its planned principal operations. Consequently, as
of September 30, 1997, the Company has incurred accumulated losses totaling
$9,479,226, resulting in an accumulated stockholders' deficit of $337,874.
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>
<CAPTION>
September 30, June 30,
1997 1997
----------- ----------
<S> <C> <C>
Costs incurred on contracts $1,531,811 $1,434,719
Estimated (losses) (605,575) (536,858)
----------- ----------
926,236 897,861
Less billings to date (872,518) (833,528)
----------- ----------
$ 53,718 $ 64,333
============ ============
</TABLE>
<PAGE>
- ------
Note 4 - Capital Structure
- ------------------------------
Because the Company has a relatively complex capital structure for its size,
the following capital structure details are set forth:
Common Stock
-------------
As of November 5, 1997 the Company had 3,924,856 shares of Common Stock issued
and outstanding, treating all 18,834 shares of Series B Preferred as if
converted into 18,834 shares of common stock. Additionally, there were
176,738 shares of subscribed stock. If the Series B Preferred is converted
and all subscribed stock is issued the Company would have 4,101,594 shares
outstanding.
Options and Warrants
----------------------
As of November 5, 1997 (including all options and warrants listed in Footnote
5, Subsequent Events) the Company has outstanding options and warrants as
follows:
Options outstanding under the Fiscal Year 1994 Incentive Compensation Plan and
the Non Employee Director Compensation Plan:
<TABLE>
<CAPTION>
<S> <C>
Director ($1.72) 10,000
Director ($2.27) 10,000
--------
20,000
Employee ($4.00) 45,262
Employee ($5.00) 21,500
Employee ($6.00) 77,756
Employee ($6.25) 32,000
Employee ($6.75) 30,000
Employee ($7.25) 10,000
Employee ($8.00) 27,754
Employee ($10.00) 10,000
Employee ($12.50) 10,000
Employee ($15.00) 10,000
------
274,272
</TABLE>
Warrants outstanding as of November 5, 1997 consist of the following:
<TABLE>
<CAPTION>
<S> <C>
$3.00 warrants:
exercisable 1/22/96 through 1/21/01: 6,730
exercisable 8/21/96 through 8/20/01: 14,500
exercisable 9/13/96 through 9/12/01: 5,550
---------
Total $3.00 warrants 26,780
$4.00 warrants:
exercisable 6/5/97 through 6/30/99: 35,000
exercisable 9/15/97 through 12/31/01: 25,000
exercisable 8/1/97 through 7/31/02: 40,000
exercisable 1/15/98 through 7/31/02: 75,000
warrants are currently unearned partial
compensation under investment banking
agreements, if earned;
exercisable 6/1/98 through 12/31/98: 50,000
--------
Total $4.00 warrants 225,000
$5.00 warrants:
exercisable 6/20/96 through 6/20/99: 25,000
exercisable 8/21/96 through 8/20/01 10,000
--------
Total $5.00 warrants 35,000
$6.00 warrants:
exercisable 6/5/97 through 6/30/00: 100,000
exercisable 9/15/97 through 12/31/01 25,000
exercisable 1/15/98 through 7/31/02: 65,000
exercisable 3/1/98 through 10/1/99: 100,000
exercisable 6/1/98 through 12/1/98: 50,000
exercisable 6/9/98 through 12/31/01: 1,250
exercisable 6/9/99 through 12/31/01: 1,250
exercisable 6/9/00 through 12/31/01: 1,250
exercisable 1/1/01 through 12/31/01: 4,863,418
exercisable 2/1/97 through 12/31/01: 10,000
exercisable 4/21/97 through 4/20/02: 13,837
--------
Total $6.00 warrants 5,231,005
$8.00 warrants:
exercisable 2/1/97 through 12/31/01: 10,000
exercisable 8/1/97 through 7/31/02: 40,000
exercisable 9/15/97 through 12/31/01: 20,000
exercisable 6/1/98 through 12/31/01: 1,250
exercisable 6/1/99 through 12/1/99: 50,000
exercisable 6/9/99 through 12/31/01: 1,250
exercisable 3/1/00 through 10/1/01: 50,000
exercisable 6/9/00 through 12/31/01: 1,250
-----
Total $8.00 warrants 173,750
$10.00 warrants:
exercisable 2/1/97 through 12/31/01: 10,000
exercisable 4/9/98 through 4/9/99: 375,000
exercisable 6/9/98 through 12/31/01: 1,250
exercisable 9/15/98 through 12/31/01: 20,000
exercisable 6/9/99 through 12/31/01: 1,250
exercisable 6/9/00 through 12/31/01: 1,250
exercisable 3/1/02 through 10/1/03: 50,000
exercisable 1/1/03 through 12/31/03: 1,387,154
---------
Total $10.00 warrants 1,845,904
$12.00 warrants:
exercisable 8/1/97 through 7/31/02: 80,000
----------
Total $12.00 warrants 80,000
$12.50 warrants:
exercisable 2/1/97 through 12/31/01: 10,000
exercisable 6/9/98 through 12/31/01: 1,250
exercisable 6/9/99 through 12/31/01: 1,250
exercisable 6/9/00 through 12/31/01: 1,250
exercisable 9/15/99 through 12/31/01: 20,000
------
Total $12.50 warrants 33,750
$15.00 warrants:
exercisable 2/1/97 through 12/31/01: 10,000
exercisable 9/15/99 through 12/31/01: 20,000
--------
Total $15.00 warrants 30,000
----------
Total of all warrants currently
outstanding 7,681,189
</TABLE>
Note 5 - Subsequent Events
- ------------------------------
In October 1997 the Company made awards to six employees under the 1994
Incentive Stock Option Plan. The Company granted the following options to
these employees:
<TABLE>
<CAPTION>
Exercise Price Vesting
Options Per Share Period
------- ---------- ------
<S> <C> <C>
10,000 $5.40 10/03/97-12/31/97
20,000 $6.25 10/03/97-12/31/97
25,000 $6.75 10/07/97-03/31/98
</TABLE>
The following cash, restricted and legended common stock, and options will be
issued as part of an employee's separation agreement: Cash: $4573.06 in
reimbursement of expenses; 3600 shares of legended and restricted common stock
to be issued on January 15, 1998 (currently subscribed); options under the
Fiscal Year 1994 Incentive Plan: 5,000 shares at an exercise price of $6.25
per share (exercisable 10/06/97-12/31/98), 10,000 shares at an exercise price
of $6.25 per share (exercisable 10/06/97 - 09/30/98), 5,000 shares at an
exercise price of $6.75 per share (exercisable 12/06/97 - 03/31/99), and
10,000 shares at an exercise price of $7.25 per share (exercisable 10/06/97 -
03/31/99).
As part of an employment arrangement the Company issued warrants to a new
employee to purchase 40,000 shares of common stock at $4.00, 40,000 shares at
$8.00, and 80,000 shares at $12.00 all exercisable for 5 years commencing
August 1, 1997. Additionally, the Company
<PAGE>
cancelled warrants previously issued to this individual when he was an
employee of Global Financial Group, Inc. for 25,000 shares at $6.00
exercisable for 6 months commencing June 1, 1998, 50,000 shares at $8.00
exercisable for 6 months commencing June 1, 1999, and 25,000 shares at $10.00
exercisable for 19 months commencing March 1, 2002. On January 15, 1998 the
Company will issue 50,000 shares of legended and restricted common stock,
options under the Fiscal Year 1994 Incentive Plan for 17,500 shares at $4.00
exercisable for 54.5 months commencing January 15, 1998, warrants for 75,000
shares at $4.00, warrants for 65,000 shares at $6.00, and warrants for 50,000
shares at $12.00 all exercisable for 54.5 months commencing January 15, 1998.
On October 7, 1997, the Company cancelled its consulting agreement in the
amount of $231,000 with Eximius Investments, Ltd. The $231,000 was booked as
a consulting fee and subscribed stock in the Company's 10-KSB for the fiscal
year ended June 30, 1997.
On October 8, 1997, the Company entered into an agreement (the "Agreement") to
design and install a number of its patented Bion NMS animal waste treatment
systems in the states of Colorado and Nebraska. The Agreement marks the
Company*s initial entry into the Colorado and Nebraska animal raising markets.
The Agreement is subject to certain contingencies regarding financing and
other matters which must be resolved by November 15, 1997 (which date has been
extended to November 30, 1997 by mutual agreement of the parties to the
Agreement, see Item 5, Other Information). The Agreement covers Phase I of a
proposed hog farm in eastern Colorado and western Nebraska which will house
330,000 finishing hogs and grants an option for Bion NMS system installations
for Phase II totaling an additional 330,000 hogs. For Phase I the Agreement
calls for payment of $1,200,000 in fees to the Company and an equity
investment in the Company of $3,000,000 through the purchase of 1,000,000
Units at a purchase price of $3.00 per Unit (each Unit consisting of one share
of the Company's restricted common stock and one warrant to purchase one share
of the Company's restricted common stock at a price of $7.00 per share
exercisable from the effective date of the Agreement until June 30, 1998).
(See Form 8-K/A dated September 30, 1997).
On Friday, October 24, 1997, the first of the two contract contingencies
relating to this Agreement was satisfied when Bowman Family Farms of Wray,
Colorado and Murphy Family Farms of Rose Hill, North Carolina, executed an
agreement concerning the operation of Phase I (and Phase II in the future) of
this project. As a result of the Bowman/Murphy agreement only the securing of
financing remains before the Bion/Bowman Agreement to construct these Bion NMS
systems becomes effective.
<PAGE>
BION ENVIRONMENTAL TECHNOLOGIES, INC.
AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company designs, installs and operates advanced waste and wastewater
treatment systems. These systems, which incorporate patented biological
technologies, are capable of removing solids, nutrients and other contaminants
from agricultural, industrial and municipal wastewater. In addition, the
agricultural systems installed on animal raising facilities produce a
marketable, nutrient-rich soil-like product, BionSoil.
The Company currently has systems treating swine, dairy, fruit and juice
processing, and sugar cane plantation waste streams in Florida, New York,
North Carolina, and Washington. The Company is in the process of designing or
monitoring the installation of twelve additional systems, raising capital for
operations and future growth, reviewing strategic partners for various aspects
of the business, continuing a research and development effort on both systems
applications and byproducts, and strengthening its patent coverage.
Liquidity and Capital Resources
- ----------------------------------
The Company's current ratio as of September 30, 1997 was 0.61 : 1.0 as
compared to 0.79 : 1.0 as of June 30, 1997. Cash as of September 30, 1997
decreased to $6,169 as compared to $9,232 as of June 30, 1997.
During the three months ended September 30, 1997, the Company borrowed
$7,000 from a shareholder at 1% interest per month. The Company also sold one
portion of the Property Held For Resale for $242,000. As a result of this
transaction the Company repaid a note payable plus interest in the amount of
$145,401, paid closing costs of $14,870 and received cash in the amount of
$81,729.
Also, during the three months ended September 30, 1997 the Company sold
123,849 shares of restricted and legended common stock for net cash of
$340,721, issued 19,659 shares of restricted and legended common stock valued
at $76,553 for services, and converted 598 shares of subscribed stock to 598
shares of restricted and legended common stock valued at $2,503. The Company
has increased subscribed stock by $47,500 for legended and restricted common
stock awarded but not issued to certain employees and an officer as additional
compensation.
<PAGE>
Effective September 15, 1997, the Company issued awards to all current
employees (excluding the Company's officers and directors) under the Company's
Fiscal Year 1994 Incentive Plan totaling 27,762 options with an exercise price
of $4.00 per share, 27,756 options with an exercise price of $6.00 per share,
27,754 options with an exercise price of $8.00 per share, 10,000 options with
an exercise price of $10.00 per share, 10,000 options with an exercise price
of $12.50 per share, and 10,000 options with an exercise price of $15.00 per
share; all of the above options expire on December 31, 2001. The options will
vest as follows: for employees with less than one year of service, the first
third shall vest on their one year employment anniversary date, the second
third shall vest on the second anniversary date, and the last third on their
third anniversary. For employees with more than one year of service, the
first third shall vest on the above effective date, and the second and last
third shall vest twelve and twenty-four months thereafter respectively.
Effective September 15, 1997, the Company authorized the issuance of
restricted stock and warrants to purchase stock to M. Duane Stutzman, the
Company's Chief Financial Officer, as follows: (a) 10,000 shares of the
Company's restricted and legended common stock (subscribed stock), (b) 25,000
warrants with an exercise price of $4.00 per share, 25,000 warrants with an
exercise price of $6.00 per share, and 20,000 warrants with an exercise price
of $8.00 per share, all three classes of warrants will vest and become
exercisable commencing September 15, 1997; (c) 20,000 warrants with an
exercise price of $10.00 per share which will vest and become exercisable on
September 15, 1998; (d) 20,000 warrants with an exercise price of $12.50 per
share and 20,000 warrants with an exercise price of $15.00 per share which
will vest and become exercisable on September 15, 1999. All classes of
warrants discussed in this paragraph are to purchase restricted and legended
shares of common stock of the Company and will expire on December 31, 2001.
Effective September 15, 1997, the Company issued the following: to Jon
Northrop, the Company's Chief Executive Officer, and to Jere Northrop,
President of the Company, 75,000 Class E-1 warrants each to purchase the
Company's restricted and legended common stock at $6.00 per share with the
exercise period commencing on January 1, 2001 and expiring on December 31,
2001, and 150,000 Class X warrants each to purchase restricted and legended
common stock of the Company at a price of $10.00 per share with the exercise
period commencing January 1, 2003 and expiring December 31, 2003.
On August 20, 1997 the Company granted, pursuant to the Company's 1996
Nonemployee Director Stock Option Plan, options to the two outside directors
Mr. Cullis and Mr. Schwanekamp for 10,000 shares each (5,000 shares for the
year ended June 30, 1996 and 5,000 for the year ended June 30, 1997) at an
exercise price of $1.72 and $2.27 per share, respectively commencing on August
20, 1997 and expiring on August 19, 2002.
<PAGE>
The Company has incurred losses since inception of $9,479,226 and is
currently experiencing liquidity problems. Continued losses without the
infusion of additional capital raise doubt about its ability to continue as a
going concern. Management plans include continuing efforts to obtain
additional capital to fund operations until such time, if ever, as contract
sales and the sale of BionSoil are sufficient to fund operations. No
assumptions can be made that the Company will be able to successfully attain
profitable operations and/or raise sufficient capital to sustain operations.
Results of Operations
- -----------------------
Comparison of the Three Months Ended September 30, 1997 with Three Months
---------------------------------------------------------------------------
Ended September 30, 1996
--------------------------
Revenue in the three months ended September 30, 1997 was $24,837 compared
to $35,547 for the corresponding three month period in 1996, a decrease of
$10,710. Contract costs were lower in the 1997 three month period by $18,628
due to the leveling off of startup expenses for the BionSoil processing sites
in New York and Florida. The above resulted in a gross loss for the period
ended September 30, 1997 of $68,717 as compared to a gross loss of $76,635 for
the same three month period in 1996.
General and administrative expenses were higher by $127,835 in the 1997
period due to increased compensation, consulting fees, and public relations
expenses.
The Company recorded $105,116 less in interest income for the three months
ended September 30, 1997. This is a result of the one time sale of Delta
Petroleum, Inc. stock associated with the Settlement Agreement and General
Release on the UFG note in the first quarter of 1996 (see Form 10-KSB/A dated
June 30, 1996). This was the final amount to be collected on the UFG note.
The total amount collected is $191,581 in excess of the original principal of
the note. The Company also recorded $22,904 in interest expense on its notes
payable and $52,757 in research and development costs. As a result of the
above, the Company recorded a net loss of $613,501 in the three month period
ended September 30, 1997, compared to a net loss of $415,423 for the three
month period ended September 30, 1996.
The Company will need to increase sales significantly to obtain
profitability.
<PAGE>
General Discussion of Current and Proposed Operations
- -----------------------------------------------------------
THE DISCUSSION BELOW CONTAINS FORWARD-LOOKING STATEMENTS (IDENTIFIED WITH
AN ASTERISK "*" AT THE END OF EACH SUCH STATEMENT) MADE IN RELIANCE UPON THE
PROVISIONS OF RULE 175 PROMULGATED UNDER THE SECURITIES ACT OF 1933 AND SHOULD
BE READ IN CONJUNCTION WITH THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS
AND THE NOTES THERETO.
As shown in the unaudited financial statements contained in this Form
10-QSB, over $9,100,000 of equity has been invested in the Company through the
close of the fiscal quarter ended September 30, 1997. These financial
statements also show that on September 30, 1997 the Company had a negative net
worth of $337,874, cumulative losses of $9,509,226, limited current revenues
and substantial current operating losses. Continued losses without additional
outside funding raise doubt about the Company*s ability to continue as a going
concern. Management plans to continue raising additional capital to fund
operations until such time, if ever, as systems sales along with the sales of
BionSoil and BionSoil products are sufficient to fund operations.
Management believes, however, that additional information is necessary to
evaluate the Company and its progress relative to the business it is pursuing
and the associated value the Company has developed during the last several
years. Therefore, the following section of this Form 10-QSB is presented by
management to give the reader a better understanding of the development of the
business of the Company to date, and its goals for growth in the future.
Business Development
---------------------
The Company's mission is to provide services, systems and products which
solve environmental problems and, in appropriate situations, recycle wastes
into high value horticultural products which produce superior plant growth
performance. Based on this, the Company is currently focused primarily on the
application of its patented and proprietary technology in two complementary
business areas; first, Bion NMS' systems: the design, sales, installation
oversight, operations management, and material harvesting of Bion NMS systems
for large animal raising agricultural facilities; and, second, BionSoil: the
processing, blending, packaging, marketing, distribution and sales of BionSoil
and BionSoil-based products which are produced from the biosolids harvested
from the Bion NMS systems.
<PAGE>
From prior to September 20, 1989, (when Bion Technologies, Inc., one of
the subsidiaries of the Company, was incorporated) through at least June 30,
1997, the Company was in the technology development mode with limited sales of
primarily first-of-a-kind wastewater and/or Bion NMS systems.
As of June 30, 1997 the Company has, in the aggregate, performed studies
for, sold, installed, or had under construction, systems in four distinct
regions: North Carolina, New York, Florida, and the Pacific Northwest. The
systems in these regions establish multiple applications for the Company's
technology including:
(a) Dairy farm wastewater treatment and nutrient reduction systems
which treat wastewater from dairy farms to remove phosphorus, nitrogen and
other nutrients and create water suitable for discharge or reuse; located in
Florida, New York, and Washington.
(b) Dairy farm Bion NMS systems which solve the environmental
problems associated with dairy farms and also create BionSoil; located in New
York, Maryland, North Carolina, Florida, Washington, and Oregon.
(c) Hog farm Bion NMS systems which solve odor, waste and wastewater
problems associated with hog farms and also create BionSoil; located in North
Carolina.
(d) Combination food processing and manure waste treatment systems
which treat nutrients and solid wastes in waste streams from combined food
processing plants and animal confinement areas; located in New York.
(e) Fruit processing wastewater treatment systems which treat
wastewater from fruit processing plants to remove solids, nutrients and other
contaminants to create water suitable for discharge or reuse; located in
Florida, New York, and Washington.
(f) Storm water and surface water run-off treatment systems which
treat storm water run-off from agricultural and industrial installations to
remove nutrients and other contaminants to create water suitable for discharge
or reuse; located in Florida, treating run-off from dairy farm pastures,
industrial installations and sugar cane plantations.
(g) A feasibility study for the installation of a Bion system for the
treatment of all wastewater generated in a small mobile home community;
located in New York.
<PAGE>
Geographic Expansion
---------------------
The activities of the Company to design, permit, install and operate
these systems have established credibility with federal, state, and local
regulators and environmental and agricultural professionals. The Company
estimates that the cost associated with staffing, servicing, and marketing its
systems in new geographic regions, including initial sales calls, design,
regulatory approvals, installation and operation through the cash-flow
break-even point (the Company has not yet achieved cash-flow break-even in any
of its regional operations), is not less than $500,000 per region, and may
exceed $1,500,000. Based on experience to date in the regions where system
sales and installation activity have been focused, the Company estimates that
approximately $3.5 million has been expensed related to these matters which
has created what might be called "good will," "marketing" and/or "regulatory"
value *.
An example of the accumulation of these costs can be understood by
reference to the development and installation of the Company's initial hog
farm Bion NMS system in North Carolina. During February 1994 the Company
opened its office in Smithfield, North Carolina with one full time sales
employee. Numerous contacts were made in both the hog raising and dairy
farming industries, and the first agreement (for a hog system) was signed in
December 1994. A second full time employee, required to provide design,
engineering, construction and system operation expertise, was transferred to
North Carolina in February 1995. Adverse weather conditions during the
construction period resulted in a longer construction time than anticipated;
however, system start-up was achieved in June of 1995, and the system has been
in continuous operation since. Based on this investment of time and effort and
the successful operation of the system, the Company has expanded its efforts
in North Carolina including hiring a horticulturist for BionSoil product
development and testing and a manager for the region. Currently, the Company
has submitted proposals to a number of potential customers, is engaged in
discussions with several of these, and has signed agreements for five
additional system installations. Management estimates that, to date, in
excess of $600,000 has been devoted to the effort to build the Company's
business in North Carolina. Current projections are that it will require, at
a minimum, an additional nine to twelve months before sufficient cash flow
will be generated from system and BionSoil sales in North Carolina to offset
ongoing expenses for operations conducted in that state *.
The Company anticipates continuing its expansion into new
areas in the future, and this expansion will require similar additional cash
resources which, when expended, will also be expensed and not shown as balance
sheet assets *.
<PAGE>
Technology Expansion
---------------------
The Company has five issued U.S. Patents: a Bioconversion Reactor and
System, an Animal Waste Bioconversion System, a Bioconverted Nutrient Rich
Humus, a Phosphorous Treatment Process, and a Storm Water Remediatory
Bioconversion System. The Company also has an issued Canadian Patent for an
Aqueous Stream Treatment Process. These patents provide broad coverage of the
fundamental technology that underlies the Company's systems and processes. It
is anticipated that additional patent filings will occur as further
applications are developed.
The Company estimates that a large portion of the net loss through fiscal
year 1995 (then shown on the financial statements as approximately $4.0
million) was actually expended on system development and the enhancement of
the technology and construction of systems that are the basis of the Company's
planned future expansion. All of these costs have been expensed by the
Company.
Just as there are additional expenses associated with geographical
expansion, there also are additional expenses associated with the adaptation
of existing technology for use in regions where climate, soil, and regulatory
conditions are different from those experienced in other already established
installations. Further, the Company anticipates additional expenditures in
the near future associated with expansions of the technology into the cattle
feedlot and poultry raising businesses where adaptation of the technology is
necessary to treat waste with both different characteristics and different
collection technologies than for existing dairy or swine waste systems *. The
majority of such expenses (which are investments in the Company's future) will
not show as balance sheet assets despite the fact that very real long term
technological value is being developed *.
Financial Discussion
---------------------
The Company receives two distinct revenue streams from Bion NMS systems:
1) initial fees for system design, permitting, start-up and initial operation
(and, for selected systems, periodic management or technology license fees),
and 2) after the initial start-up period for a system (approximately 12 to 15
months after the agreement is signed), revenue from the sale of BionSoil and
BionSoil-based products produced from the systems.
BionSoil Economics
-------------------
<PAGE>
The Company tracks its BionSoil business on the basis of a Company
defined standard unit (a "BionAnimal"), which relates BionSoil production to
confined animal weight. When all the manure and urine produced by one
BionAnimal is collected and converted into BionSoil, the Company estimates
that each BionAnimal will yield approximately 10 cubic yards of processed
BionSoil per year*. Based on data available from the American Society of
Agricultural Engineers (ASAE D384.1 - 1989) the Company has calculated that,
for totally confined animals where all wastes are captured, approximately one
dairy cow, 2.2 beef cattle, 11 market hogs, 200 turkeys, or 475 layer chickens
will equal one BionAnimal.
As of September 30, 1997 the Company has nine systems containing 4,730
BionAnimals that are on line and producing biosolids which will be processed
into BionSoil. Further, the Company has signed contracts covering six
additional systems that will contain 4,575 BionAnimals that are not yet in
production. These systems are in various stages from preliminary design
through construction. As a result, the Company has fifteen systems containing
9,305 total BionAnimals in production or covered by signed contracts. The
Company estimates that these BionAnimals should produce approximately 93,000
cubic yards of processed BionSoil per year when all of the systems are on
line, which is currently expected to occur within the next nine to twelve
months*.
The Company did not meet its systems sales and BionAnimal projections for
the fiscal year ended June 30, 1997 due to a number of factors, including but
not limited to capital availability, the decision to close the Company's
Washington state operations, uncertainty created in certain markets due to
pending legislation which could directly impact animal waste treatment and
disposal practices, the decision to cancel certain agreements and/or contracts
for systems that were not profitable, and the decision to renegotiate certain
of its existing agreements for systems to establish more equitable terms
(which systems have been removed from the above system and BionAnimal totals
until such time as the renegotiations result in new signed contracts).
As systems are brought on line and biosolids harvested, BionSoil, Inc.
(the Company's other wholly-owned subsidiary) will purchase (for cash) the
harvested material from Bion Technologies, Inc. to process it into final
products for sale to customers *. Subsequently, some farms may be paid fees
as royalty for the biosolids *. These payments may represent an important
part of the strategy developed by the Company for the successful marketing of
Bion NMS systems *. Most large animal raising facilities have substantial
operating costs associated with the disposal of waste products which are
produced in large quantities at these facilities*. With the construction and
operation of a Bion NMS on a farm site, many of these costs can be
substantially reduced or eliminated, and the farm may also receive a revenue
stream from the cash payments made by the Company to the farm *.
<PAGE>
Initial BionSoil harvests have been made during the last twelve months of
approximately 12,500 cubic yards. Of that amount, 2,110 cubic yards of
BionSoil were sold in bulk at prices ranging from $4.00 to $20.00 per yard.
Small quantities of processed and bagged BionSoil, in 20 to 75 pound bags,
have been sold to organic farmers, nurseries, and at farmers markets and green
markets in New York and Florida for the equivalent of $40.00 to $100.00 per
cubic yard. During the year ended June 30, 1997, the first distribution to
retail outlets was initiated with Agway stores in western New York.
Deliveries averaging six pallets per store were made to 15 Agway retail
stores. This product is being sold to Agway at introductory prices of $65.00
per cubic yard ($1.625 per 25-pound bag). Additionally, at the Company's
Hermitage New York facility, BionSoil is being blended with Sphagnum peat moss
and processed into both 20 pound and 40 pound bags. The Company estimates it
will manufacture 200,000 bags in preparation for sale to the retail market in
the Spring of 1998 *. The average selling price during the past fiscal year
for bulk, unprocessed BionSoil was $9.88 per cubic yard, and for processed and
bagged BionSoil was $87.89 per cubic yard. It should be noted, however, that
a large part of this BionSoil was from first harvests of various systems
which, due to start-up issues, yield a lower quantity of high quality product.
While sales of Bion NMS systems have been sporadic over the last four
years, and significant quantities of BionSoil have only recently become
available, the Company believes it has clearly demonstrated the technology
with ten systems in successful operation, seven of which have been on line for
more than two years. Additionally, through both Company performed and
independent university sponsored testing, BionSoil has been shown to clearly
enhance plant growth performance. Based on these results and analysis of the
Company's potential markets, a series of aggressive goals for system sales and
installations have been established. These goals which, if actually achieved,
would result in a major expansion of the Company, are based on historical
sales during the past year, the large number of proposals and preliminary
agreements currently being prepared, and the apparent steadily increasing
interest in Bion NMS systems in the large animal agriculture area*.
<PAGE>
Management's goals at present set as a target a level of 250 systems
under contract containing 200,000 BionAnimals by June 30, 2000, the end of the
Company's fiscal year 2000 *. If actually achieved, this goal represents a
2200% growth in the number of BionAnimals under contract *. To support
achievement of this long range goal the Company has established the addition
of 40 systems under contract (containing 30,000 BionAnimals) as its target for
June 30, 1998 *. The Company is currently working with the offices in each
region to develop strategic plans to achieve this level of sales as well as
the short range plans to accomplish the fiscal year 1998 goal *. If these
targets for fiscal year 1998 are met and the systems are brought into
production as anticipated, after appropriate start-up period, BionSoil and
BionSoil products in the approximate amount of 400,000 cubic yards per year
should be available for harvest and preparation for sale during and after
fiscal 1999 *. If the Company's goal for growth through fiscal 2000 is met
approximately 2,000,000 cubic yards per year of BionSoil and BionSoil products
would be available for sale in fiscal years after fiscal year 2000 *.
Market Size
------------
The long range sales goal outlined by the Company represents aggressive
growth for the Company *. Although an examination of the size of the target
markets for system sales and installations and BionSoil sales shows that the
percent of total market penetration which these goals represent are very
modest, there can be no assurance that the Company will be successful in
achieving its targeted goals *.
The Company has analyzed the 1992 U.S. Department of Agriculture Census
statistics (the most recent information available from the U.S. Department of
Agriculture) and developed the data presented below for the target market
segments for system sales. The Company has analyzed the economics of system
installation and operation as they relate to the size of farms, and based on
this analysis has established a potential target universe of approximately 14
million BionAnimals which are on large farms, and therefore are believed by
the Company to be potential candidates for system installation *. On the
basis of these assumptions and the analysis done, the goal for fiscal year
1998 system sales (and the associated BionAnimals) would represent
approximately a 0.3% market penetration in fiscal 1998, and the goal for
fiscal year 2000, if achieved, would represent approximately a 1.4% market
penetration *.
<PAGE>
The Company believes that the potential market for BionSoil and blended
BionSoil products has been described and quantified by the Battelle Institute
in a study conducted for the Solid Waste Composting Council (see Biomass and
-----------
Bioenergy, Vol. 3, Nos 3-4, pp. 281-299, 1992, "Compost: United States Supply
- ---------
and Demand Potential") *. Batelle calculated that the demand for compost and
compost-like products (including products ranging from manures to composted
organic wastes to manufactured potting soils and soil enhancers) in the U.S.
alone is projected to be in excess of one billion cubic yards per year which
far exceeds projected supply in nine application segments: landscapers,
delivered topsoil, bagged retail, nurseries, landfill final cover, surface
mine reclamation, sod production, silvaculture, and agriculture *. Targeted
markets for BionSoil include these segments in addition to state and municipal
park and transportation departments, golf courses and athletic fields, home
gardeners, reforestation projects for timber and mining companies, and the
U.S. Park Service *. On the basis of this projected market potential, the
BionSoil that the Company anticipates will be produced from the 40,000
BionAnimals if the Company reaches its fiscal year 1998 sales target (in
excess of 400,000 cubic yards) would result in less than a 0.1% market
penetration, and the goal for fiscal year 2000, if achieved, would represent
approximately a 0.2% market penetration in this broadly defined market *. As
part of its current planning process the Company is developing a detailed
analysis of targeted market segments and is establishing plans to penetrate
these segments *.
Based on current pricing experience, a review of prices for soils and
soil-enhancing products in the market, target market segment strategies being
developed, and limited sales to date, the Company believes that BionSoil will
sell at no less than $10 per cubic yard when sold unprocessed in bulk, and
will sell for higher prices when processed and bagged, prices which may rise
to $100 per cubic yard (or greater) *. Additionally, based on actual costs
experienced in BionSoil harvesting and processing to date, and projected costs
as volume levels increase to the forecast levels, the Company has established
projected costs for the various levels of processing required to sell BionSoil
products *. Therefore, given the contract terms and projected costs of
production and sales, the potential return to the Company from BionSoil
products sales alone has been projected for a series of potential price points
(and the implied processing levels required to achieve the products to be sold
at these price points) *. Table 1 presents this information for six selected
price points *. This table has been prepared based on the Company's limited
experience to date with the harvesting and processing of BionSoil and BionSoil
products *. While this information represents management's best estimates for
possible future performance, there can be no guarantee that these projections
will be achieved *.
Table 1 *
<TABLE>
<CAPTION>
Projected Projected
BionSoil Selling Projected Annual Gross Margin
--------------------
Price Per Cubic Bion Per Cubic Per Bion
Yard * Expenses * Yard * Animal *
- ------------ ----------- ---------- ----------
<S> <C> <C> <C>
$ 10 * $ 8 * $ 2 * $ 20 *
20 * 13 * 7 * 70 *
40 * 28 * 12 * 120 *
60 * 37 * 23 * 230 *
80 * 40 * 40 * 400 *
100 * 43 * 57 * 570 *
</TABLE>
<PAGE>
Income from BionSoil sales is anticipated to begin in an average of one
and a half to two years after the signing of an agreement for a Bion NMS
system *. These gross margins would be expected to be repeated each year
thereafter for as long as the installations remain in operation *. No fees
for system installation, licensing, or management are included in these
projections *.
If the Company is successful in bringing targeted systems on line
producing BionSoil within the 12 to 15 month start-up time frame (which cannot
be assured and is subject to numerous and substantial risks as explained
below) and is successful in realizing a target average sales price of $40 per
cubic yard (starting in fiscal year 1998)(which also cannot be assured and is
subject to numerous and substantial risks as explained below), each BionAnimal
would contribute $400 of revenue per year to the Company, resulting in
projected gross margins of $120 per year *. Under the terms of most Bion NMS
agreements, this contribution to revenue and gross margin is anticipated to
continue for at least a 15-year period (the term of most Bion NMS system
contracts before extension (if any) for additional years) *. If the net
present value (discounted at 10%) of this gross margin cash flow is calculated
for this 15-year period, the Company projects that each BionAnimal is
anticipated to have approximately $950 net present value to the Company *.
Table 2, below, summarizes this net present value projection for the
BionSoil selling prices reflected in Table 1, above *.
Table 2 *
<TABLE>
<CAPTION>
Projected Projected
BionSoil Selling 15 Year Net Present
Price Per Value of Per Animal
Cubic Yard * Annual Gross Margins *
- --------------- -------------------------
<S> <C>
$ 10 * $ 158 *
20 * 555 *
40 * 952 *
60 * 1,826 *
80 * 3,176 *
100 * 4,525 *
<PAGE>
In the past the Company has lost money on system design, permitting
support, construction oversight and initial system operation. However, based
on experience to date, the Company has established pricing for its contracts
that the Company believes will, independent of BionSoil revenues, will be
sufficient to cover direct expenses (such as system design, permitting
support, construction oversight and initial system operation) related to these
system installations *. Even though the Company is extremely small at
present, has not yet developed substantial market penetration, needs to raise
additional capital, and has (and is continuing to accrue) losses to date, the
potential return based on the Company's growth goals is apparent if the
Company is successful in achieving its targets *.
As the discussion above includes forward looking statements made in
reliance upon the provisions of Rule 175 promulgated under the Securities Act
of 1933, readers are cautioned that, although management believes it currently
has a reasonable good faith basis for disclosing the substance of some of its
internal projections to the public at this time, there can be no assurance
given that the Company will ever be successful in achieving any of its stated
goals. The Company intends to periodically report on its progress, or lack
thereof, in attaining the goals set forth above. The ultimate realization of
most (if not all) of the Company's goals will require significant expenditures
of funds which as of this date are not currently available to the Company.
It is currently anticipated that the selling and installation of
additional BionSoil systems will require the Company to hire additional
personnel, make significant capital expenditures and generally increase its
overhead. Further, the marketing and sale of BionSoil products will require
the implementation of a distribution network of wholesalers and/or retailers
and a transportation system for delivery of the product to the intended
recipients, and may require permitting in some locations, none of which the
Company may be successful in achieving. Additional expenditures for personnel
and equipment will be necessary to harvest, process, package, sell and deliver
the product. The projections stated by management assume that the Company
will be successful in obtaining the requisite funds on commercially reasonable
terms and that the other stated obstacles will be successfully overcome in the
process of making sales of products in the future.
As the Company has never operated at a profit and has a negative net
worth at the present time, its ability to successfully confront even the
currently identified challenges which lie ahead in meeting its stated goals is
far from certain. It is likely that the Company will face additional
challenges which have not as yet even been identified. In the event the
Company is not able to obtain sufficient outside funding to accomplish its
goals within the time periods indicated, the goals will not be met. In the
event the Company is not able to successfully overcome the other stated
obstacles in the process of making future sales within the time periods
indicated, the goals will not be met. As the Company's operations are not
currently profitable, readers are further cautioned that, if the Company is
not successful in obtaining outside funding in an amount sufficient for it to
meet its operating expenses even at its current level, the Company's continued
existence is uncertain.
<PAGE>
OTHER INFORMATION
------------------
PART II
- --------
ITEM 1. 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 2. Changes in Securities.
(c) The following securities were sold in the quarter ended September 30,
1997 without registering the securities under the Securities Act.:
90,500 shares of restricted and legended Common Stock to nine investors in
privately negotiated transactions for an aggregate amount of $271,500.
29,849 shares of restricted and legended Common Stock to one investor under
the terms of a 1992 agreement granting such investor a preemptive right to
acquire such shares for an aggregate amount of $55,220.65.
598 shares of restricted and legended Common Stock to two employees in lieu
of cash for services rendered valued at, in aggregate, $2,503.50.
3,202 shares of restricted and legended Common Stock to a shareholder for
rent and services valued in aggregate at $10,725.
<PAGE>
The shares of the Company's Common Stock which were issued pursuant to the
transactions set forth above were issued in reliance upon the exemptions from
registration afforded by Sections 3(b), 4(2), or other provisions of the
Securities Act of 1933, as amended. Each of the persons to whom such
securities were issued made an informed investment decision based upon
negotiation with the Company and was provided with appropriate offering
documents and access to material information regarding the Company. The
Company believes that such persons had knowledge and experience in financial
and business matters such that they were capable of evaluating the merits and
risks of the acquisition of the Company's Common Stock in connection with
these transactions. All certificates representing such common shares bear an
appropriate legend restricting the transfer of such securities, except in
accordance with the Securities Act of 1933, as amended, and stop transfer
instructions have been provided to the Company's transfer agent in accordance
therewith.
ITEM 3. Defaults Upon Senior Securities. None
ITEM 4. Submission of Matters to a Vote of Security Holders. None
ITEM 5. Other Information.
The Agreement between Bion Technologies, Inc. and Bowman Family Farms, LLC
dated October 8, 1997 has been amended to, among other things, extend the date
for satisfaction of the two contingencies from November 15, 1997 to November
30, 1997, and change Bowman Family Farms, LLC to Crystal Springs, LLC and
Bowman Family Farms, Inc. See Exhibit 10.1 below.
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
10.1 Amended Agreement between Bion
Technologies, Inc. and Crystal Springs,
LLC and Bowman Family Farms, Inc.
27 Financial Data Schedule.
(b) Reports on Form 8-K:
Form 8-K (dated September 1, 1997)
reporting on item 5.
Form 8-K (dated September 30, 1997)
reporting on item 5 & 7.
Form 8-K/A (dated September 30, 1997)
reporting on items 5 & 7.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunder duly authorized.
Bion Environmental Technologies, Inc.
/s/ M. Duane Stutzman
-----------------------------
M. Duane Stutzman, Chief Financial
Officer
Dated: November 13, 1997
-----------------------
<PAGE>
Bion Technologies, Inc.
- -----------------------
</TABLE>
Exhibit 10.1
Bion Technologies, Inc.
- -----------------------
BION NMS' INSTALLATION AGREEMENT
This agreement (the "AGREEMENT") is made and entered into this _____ day
of _________, 19___, by and between Bion Technologies, Inc. (hereinafter
called "BION") a corporation organized under the laws of Colorado and having a
place of business at 555 17th Street, Suite 3310, Denver, CO 80202 and
Crystal Springs, LLC and Bowman Family Farms, Inc. (hereinafter called "BFF")
having a place of business at 415 Main Street, Wray, CO 80758. (BION and BFF
are collectively the "PARTIES"). This AGREEMENT becomes effective on the later
of the date when BFF signs an agreement with an integrator for provision of
hogs and management of their facilities described in this AGREEMENT, or the
date when BFF completes the financing agreement required for the project
described in this AGREEMENT, but in no event later than November 30, 1997. To
the extent that there is any conflict or contradiction between the terms and
conditions of this AGREEMENT and any subsequent document to which this
AGREEMENT is attached, the terms and conditions of this document shall control
absent express language to the contrary.
WITNESSETH
WHEREAS, BION is a technology based company which has developed and
possesses pending and granted patent assets and certain confidential
proprietary information, data and experience relating to systems for the
treatment and processing of animal waste, for the production of organic soils,
humus, fertilizers, remediated organics and mixtures with other materials
which is considered by BION to be secret and confidential and to constitute a
valuable commercial asset; and,
WHEREAS, BFF acknowledges and understands the secret and confidential
nature of BION's confidential proprietary information, data and experience and
has executed an agreement in which BFF has specifically agreed to maintain
such information, data and experience confidential and has agreed not to use
such information, data and experience in the performance of any other work for
itself or others; and,
WHEREAS, BFF plans to construct a facility in Nebraska and/or Colorado
with initial finishing capacity for 330,000 hogs, which facility is the first
phase ("PHASE I") of a project ("PROJECT") which may contain up to twelve
phases of hog facilities each of comparable size, and which also may contain a
large dairy facility, and this AGREEMENT specifically covers PHASE I and
grants an option on PHASE II,
NOW, THEREFORE, the PARTIES hereto do mutually agree to conduct their
business relationship as follows:
1. ENGAGEMENT OF BION
BFF hereby agrees to engage BION and BION hereby agrees to perform the
services set forth in ATTACHMENT A.
2. SCOPE OF SERVICES
BION shall provide services, (hereinafter referred to as the "WORK"), as set
forth in ATTACHMENT A in accordance with the Standard Terms and Conditions of
this AGREEMENT (ATTACHMENT B). BION retains the right to alter the WORK in
terms of the specific requirements of PHASE I of the PROJECT.
<PAGE>
Bion Technologies, Inc.
- -----------------------
3. BFF'S RESPONSIBILITIES
A. BFF agrees to:
i. Provide to BION information, including previous reports, plans, and any
other data in the possession or control of BFF relative to the WORK;
ii. give prompt written notice to BION whenever BFF observes or otherwise
becomes aware of any development that affects the WORK or timing of BION's
services;
iii. designate a representative having authority to give instruction, receive
information, define BFF's policies, and make decisions with respect to the
WORK;
iv. bear at all times any and all expenses for obtaining any and all
approvals and permits from public agencies or authorities (including, but not
limited to, field and laboratory tests and surveys) except to the extent that
future permits or regulatory approvals are required as the direct result of
actions taken by employees or designates of BION;
v. bear the cost of all surveying, soils investigation, engineering,
equipment, materials, and construction required to design, install and operate
the Bion NMS including electrical power and equipment maintenance and
replacement; and
vi. physically operate and maintain the Bion NMS and its associated equipment
as defined in the Operations and Maintenance Manual (the "O&M Manual")
prepared for each system (see ATTACHMENT A), and bear all sampling, analysis,
and reporting costs for monitoring of the Bion NMS as required by the
appropriate regulatory agencies.
B. BFF agrees that each Bion NMS system designed and installed under the
terms of this AGREEMENT is designed for the specific use described in this
AGREEMENT and its ATTACHMENTS, is designed to treat a "normal" waste and
wastewater effluent that is produced by confined animal hog raising UNITS, and
is not designed for any significant change in the characteristics of the
wastewater delivered from the hog houses to the system. BFF agrees to notify
BION in writing in advance if there will be any change from the "normal"
wastewater, and agrees to keep all human wastes and toxic and hazardous wastes
out of the Bion NMS including but not limited to all domestic wastewater from
showers, toilets, and sinks, and any needles, syringes, or any veterinary
wastes (cleaners, detergents, and disinfectants approved for use in normal
operation of the facility will not be considered toxic or hazardous wastes).
4. PERIOD OF PERFORMANCE
The primary term of the AGREEMENT shall be for the period beginning on the
date of execution of this AGREEMENT and shall continue for a period of 15
years. Following the primary term this agreement may be renewed for three
successive secondary terms of five years each as follows: Two years prior to
the end of the primary term or any secondary term, either party may decide
that this agreement will not be renewed for the first (or any subsequent)
secondary term. If either party does not give written notice of non-renewal
to the other party on or before the date two years prior to the end of the
term, this agreement will continue on the same terms for the next term.
5. BION COMPENSATION
A. Each site where a Bion NMS is being installed has its unique character.
This requires BION to individually design the application of the Bion NMS for
each site at which it is to be installed. BION's goal is to design each Bion
NMS application to complement the existing site as much as practicable. BION
agrees to perform the services described in Attachment A and such other
activities as required by this AGREEMENT. BFF agrees to pay BION in
consideration of this AGREEMENT the aggregate sum of $4,200,000 payable as
follows:
i. $600,000, 15 days following receipt of payment from the first draw from
the construction loan negotiated by BFF for PHASE I of this PROJECT,
ii. $600,000, 15 days following receipt of payment from the first monthly
draw from the construction loan negotiated by BFF for PHASE I of this PROJECT,
iii. $700,000, 15 days following receipt of payment from the second
monthly draw from the construction loan negotiated by BFF for PHASE I of this
PROJECT,
iv. $550,000, 15 days following receipt of payment from the third through
the fifth monthly draws from the construction loan negotiated by BFF for PHASE
I of this PROJECT,
v. $50,000, 15 days following the receipt of payment from the sixth
through the eighteenth monthly draws from the construction loan negotiated by
BFF for PHASE I of this PROJECT,
provided, however, if BION and BFF agree on a schedule of development whereby
PHASE I of the PROJECT is anticipated to be completed in less than the 18
months, this payment schedule shall be compressed on a ratable basis. Not
withstanding any of the above, upon completion of the construction of all of
the systems contemplated by this AGREEMENT, all amounts are due and payable.
B. Late payment charges of 1.5% per month, payable to BION, will be due if
payments are not received within 15 days of due date. BFF will be responsible
for any and all reasonable legal and/or court expenses incurred by BION in
BION's attempt to recover any unpaid amounts in case of failure of BFF to pay
BION for services performed and/or expenses incurred for BFF'S account.
C. For WORK provided by BION beyond the scope of services described in
ATTACHMENT A, or for unforeseen circumstances or changes in the scope of
services required by BFF, BION shall be compensated for such services as
negotiated by BION and BFF.
6. BION NMS SYSTEM OPERATION COMPENSATION AND PAYMENT
A. BFF agrees to pay BION for start-up and operational services as described
in ATTACHMENT A as follows:
i. $8,250 per month upon the start-up of the first Bion NMS for the first
UNIT.
ii. $16,500 per month commencing with the start-up of the Bion NMS for the
fourth UNIT.
B. Commencing January 1 of the first year after start-up of the first Bion
NMS for the first UNIT, the monthly fee will be adjusted at a rate of 5% (five
percent) or the change in the Consumer Price Index for the previous calendar
year, whichever is less.
C. On a date one year after the start-up of the first Bion NMS, BION and BFF
shall evaluate the monthly payments for start-up and operational services and
negotiate any revisions that may be necessary.
7. BIO-SOLIDS
A. Bio-solids which are produced in the operation of each Bion NMS are owned
by BION. BION agrees to harvest, process, and remove all acceptable
bio-solids from the site. Currently production of bio-solids is estimated to
be between 0.7 and 1.1 cubic yards per year per hog UNIT.
B. BION reserves the right to reject all bio-solids which are contaminated
with human wastes, toxic or hazardous materials including but not limited to,
needles, syringes, other veterinary wastes, or other foreign material.
Harvest and disposal of such rejected bio-solids (and the costs related
thereto) is the sole responsibility of BFF. In the event that bio-solids are
rejected because of contamination, BFF shall pay BION the fair market value of
the rejected bio-solids within 30 days of the determination that they are
contaminated and will be rejected.
C. By the terms of this AGREEMENT, BFF is granted a first option to acquire
up to 50% of the bio-solids produced at the site at a price equal to a 20%
discount from the sales price charged to independent third parties for
comparable bio-solids established in independent markets in other states. BFF
shall notify BION in writing on or before January 1 of each year of the
AGREEMENT as to the amount of bio-solids they wish to acquire in the
succeeding twelve month period. BFF shall make payment for bio-solids
acquired under this AGREEMENT within 30 days of invoice.
8. SECURITIES PURCHASE AGREEMENT
BFF shall receive the securities of Bion Environmental Technologies, Inc. as
described in Attachment C to this AGREEMENT on the terms and conditions set
forth therein.
9. SYSTEM OPERATION
BFF acknowledges that the operation of the Bion NMS systems contemplated by
this AGREEMENT requires extensive knowledge concerning patented and
proprietary information possessed by BION and hereby agrees that all personnel
working for the company that manages the hog raising facilities for BFF will
not be permitted to enter into the Bion NMS systems area without prior
permission from BFF and BION.
10. BOARD OF DIRECTORS REPRESENTATION
Upon completion of the performance required in Section 5, A, i, BION shall use
its best efforts to have Michael A. Bowman, Authorized Agent of BFF, or
another person agreeable to BION named as a Director of Bion Environmental
Technologies, Inc., BION's parent company.
This AGREEMENT sets forth all material terms and conditions between the
PARTIES and shall be binding upon execution. The PARTIES hereto acknowledge
that more extensive lawyer drafted documents may be desired by either or both
PARTIES in which case this AGREEMENT shall be incorporated by reference
therein. This AGREEMENT, including all ATTACHMENTS, is subject to the Terms
and Conditions (ATTACHMENT B) which are made part hereof and which BFF
acknowledges that it has read. IN WITNESS WHEREOF, the PARTIES have caused
this AGREEMENT to be executed this _____ day of ________, 1997.
CRYSTAL SPRINGS, LLC and
BION TECHNOLOGIES, INC.: BOWMAN FAMILY FARMS, Inc.:
By: /s/ Jon Northrop By: /s/ Michael A. Bowman
------------------------------------ ---------------------------
Title: Chief Executive Officer Title: Authorized Agent
--------------------------------- -----------------------
<PAGE>
ATTACHMENT A
SCOPE OF SERVICES
-------------------
BION has developed a patented waste management system, Bion NMS' which
treats all aspects of an agricultural waste stream. Every Bion NMS system is
as unique as the agricultural facility on which it is constructed. BION
individually designs each Bion NMS to complement the existing facilities'
operation while optimizing any existing components which may be usable. The
Bion NMS is designed in accordance with BION system standards and in
compliance with Natural Resources Conservation Service (NRCS) Standards and
Specifications for waste storage lagoons.
This AGREEMENT covers BION's participation in PHASE I of the BFF hog
facility PROJECT. PHASE I will provide finish capacity facilities to hold
330,000 hogs in inventory. PHASE I of the PROJECT consists of twelve (12)
units ("UNIT") where each UNIT is made up of 9 finishing buildings, with each
building holding approximately 3,000 hogs. Bion NMS systems will be designed
to treat the waste production of PHASE I of the PROJECT.
The following describes the work to be conducted by BION for the
pre-design, design, construction and operation of each Bion NMS:
1. PRE-DESIGN
A. BION will coordinate the pre-design activities required for the design of
the Bion NMS to be constructed at each UNIT. The pre-design information
detailed below must be provided to BION to ensure proper design and
construction of the Bion NMS.
B. BION will coordinate with BFF to obtain the site specific information
required by BION to complete the individually designed Bion NMS. The
information needed to complete the design is as follows: topographic survey
information, geologic information, regulatory information, wetlands
information, and flood prone areas information, and such other information as
BION may require to design the Bion NMS systems which information will be
supplied by BFF at their cost as long as such cost is reasonable.
I. TOPOGRAPHIC SURVEY INFORMATION
BFF shall provide BION a topographic survey of each of the intended UNIT
sites. The topographic survey provided to BION must include a survey of the
site with one (1) foot contour intervals tied into a local horizontal
coordinate system. The survey must be readable by AutoCAD and contain
information required to conduct a cut and fill analysis. The survey should
also locate any existing buildings and other landmarks needed to locate and
design the Bion NMS.
II. GEOLOGIC INVESTIGATION
BFF shall provide to BION the geotechnical information necessary to design and
construct the Bion NMS. This information is necessary to evaluate the
suitability of the site by examining subsurface soils, location of bedrock and
groundwater conditions. The information should contain data derived from
on-site test pits.
III. REGULATORY INFORMATION
Prior to designing the system, BION will investigate the regulations affecting
the design and construction of the Bion NMS. Regulations could include local
zoning ordinances, Department of Health requirements, State environmental
conservation and/or other Federal agency requirements. BION may need to
identify the PROJECT location and type during various conversations with
regulatory agencies.
IV. WETLANDS INFORMATION
During the early planning stages, BION will determine the proximity of the
Bion NMS to wetlands. BION will consult with the State regulatory authorities
concerning freshwater wetland regulations that may be applicable. In
addition, BION will consult with USDA's Fish and Wildlife Service and the U.S.
Army Corps of Engineers for wetlands under their jurisdiction.
V. FLOOD PRONE AREAS
BION will check with local agencies for flood zone maps and restrictions that
may be applicable. The Bion NMS must be protected from flooding so that a
flood event does not cause high nutrient materials to be washed out.
2. DESIGN
A. BION will design each site specific Bion NMS. BION will prepare the
detailed design drawings and specifications necessary for preparation of
construction drawings for the Bion NMS on each site. BION will prepare and
present the design drawings to BFF and regulatory authorities if necessary for
its review and comment when the design drawings are approximately 50%
complete. BFF will notify BION, in writing, of any comments in regards to the
design drawings.
B. BION will coordinate with BFF consultants the final design and construction
drawings required for the Bion NMS construction. BION will design the Bion
NMS with due regard for the comments received from BFF during its review of
the preliminary design drawings. BION will complete the design drawings based
upon BFF's comments, if any. BION will provide BFF with three (3) copies of
the design drawings and specifications.
C. BION will prepare and provide an engineering design report, if required,
detailing all calculations and design criteria. BION will also assist in the
preparation of permit applications, if required. The design will meet all
applicable Governmental regulations.
3. CONSTRUCTION CONSULTATION
BION will provide on-site staff for the purpose of monitoring construction to
ensure the proper construction of each Bion NMS in accordance with BION'S
design. BION will notify BFF in writing of any failure to follow the design.
BION will prepare, to the best of its ability at it's cost, a certification
report detailing all Quality Control/Quality Assurance matters appropriate to
Bion's standards, sampling results and as-built conditions. BFF shall be
responsible for the cost of all Quality Control/Quality Assurance analysis
required by regulatory agencies.
4. OPERATIONS SUPPORT
A. BION will provide on-site operational support services during the Initial
Start-up phase and Long-term operation of each Bion NMS, as long as this
agreement is in effect. Bion will assist BFF in defining the environmental
standards to which systems will perform and in interfacing with regulatory
inquiries.
B. BION will prepare an O&M Manual for BFF to keep at each facility and refer
to for specific operational information.
C. Following start-up, BION will provide an on-site technical support staff
during the ongoing operation of the systems to insure that the biological
processes are being managed correctly and that the systems are operating as
designed. Each Bion NMS will be visited on a regularly scheduled basis, with
supplemental visits on an as-needed basis. BION will perform biological
evaluations of the systems and the system's components and make necessary
process measurements and adjustments to ensure biodynamic stability.
D. BION will inspect and recommend to BFF any additional maintenance of all
mechanical and electrical components of the system to insure proper
operational control. Hydraulic flow through the system and appropriate
operating levels will be maintained or adjusted as required for appropriate
system functioning.
E. Bio-solids development and deposition will be monitored by Bion to ensure
the development of a high quality final bio-solids harvest.
F. BION will monitor water quality throughout the systems to ensure nutrient
control and reduction performance consistent with disposal and reuse.
G. This Agreement does not cover the specific responsibilities of the PARTIES
regarding bio-solids harvesting, which items shall be specified at a later
date.
<PAGE>
ATTACHMENT B
STANDARD TERMS AND CONDITIONS
--------------------------------
1. LICENSE. Bion NMS' is a proprietary process owned and developed by
-------
Bion Technologies, Inc. ("BION"). It is protected by issued patents and
patent applications on file with the U.S. Patent Office as well as by
confidential information, data and experience regarding the Bion NMS, each and
all of which are considered to be valuable proprietary technology assets to
BION. The term "TECHNOLOGY", as used in this AGREEMENT, is comprised of,
without limitation, the patents held by BION, secret and confidential
information, data and experience regarding the Bion NMS, the specifications
and drawings having been prepared specifically as to the application of BION
proprietary information and know-how regarding the subject matter of this
AGREEMENT, together with all information, communications and documentation
provided by BION or its agents for the purpose of constructing the PROJECT
contemplated by this AGREEMENT. In conjunction with this AGREEMENT, BION
grants a non-exclusive license to the BFF to use the TECHNOLOGY only for the
PROJECT specified ("SITE LICENSE"), under the terms and conditions set forth
in this AGREEMENT for the sole purpose of construction, operation and
maintenance of the Bion NMS. The SITE LICENSE provided by BION to BFF does
not and shall not be construed to create a joint venture or partnership
between BION and BFF. The SITE LICENSE will continue in full force and effect
while the AGREEMENT between the PARTIES is in full force and effect and will
automatically terminate upon termination of such AGREEMENT.
The primary term of the AGREEMENT shall be for the period beginning on
the date of execution of this AGREEMENT and shall continue for a period of 15
years. Following the primary term this agreement may be renewed for three
successive secondary terms of five years each as follows: Two years prior to
the end of the primary term or any secondary term, either party may decide
that this agreement will not be renewed for the first (or any subsequent)
secondary term. If either party does not give written notice of non-renewal
to the other party on or before the date two years prior to the end of the
term, this agreement will continue on the same terms for the next term. If
the AGREEMENT is not renewed or is terminated for any reason, the SITE LICENSE
will be revoked and each Bion NMS must be dismantled and permanently taken out
of service by BFF so that it cannot be used, in whole or in part, to produce
bio-solids, or any similarly produced manure by-product, for sale or other
use, including use on BFF's Site.
2. WARRANTY. As to any equipment and/or goods specified, recommended
--------
or chosen by or with the assistance of BION, BFF will look solely to the
manufacturer/supplier of such equipment or goods respectively for defects in
such equipment or products.
3. LIMITATION OF LIABILITY. Notwithstanding anything to the contrary
-----------------------
in this AGREEMENT, it is expressly agreed that, provided the system operates
as described in the attached Installation Agreement, as amended, BION will in
no event be liable for any consequential or incidental damages, including lost
profits, relating to or arising out of or in connection with the delivery, use
or performance of the system or for any actual damages in excess of that
portion of the purchase price actually paid by BFF to BION hereunder. BFF
agrees that the system is designed for the specific use described in this
AGREEMENT and is not designed for any significant change in the
characteristics of the waste and wastewater influent.
4. CONFIDENTIALITY. BFF acknowledges and understands the secret and
---------------
confidential nature of BION's confidential proprietary information, data and
experience (and has executed an agreement in which BFF has specifically agreed
to maintain such information, data and experience confidential and has agreed
not to use such information, data and experience in the performance of any
other work for itself or others) and further acknowledges that the design of
the system and the know-how and technical, financial and commercial
information, data and experience provided by BION to build and operate the
Bion NMS, are confidential in nature and proprietary to BION (collectively the
"CONFIDENTIAL INFORMATION"). Without BION's prior written consent, BFF will
not, directly or indirectly, disseminate or make accessible all or any portion
of such CONFIDENTIAL INFORMATION to any third party, except (i) employees,
contractors, and agents of BFF who have agreed to maintain the confidentiality
of all CONFIDENTIAL INFORMATION to the same extent as BFF is bound hereunder,
and (ii) as required by law.
Without approval from BION, BFF will not copy, in whole or in part, the
O&M Manual or any other materials containing CONFIDENTIAL INFORMATION. Upon
termination of this AGREEMENT, BFF will return the O&M Manual and all
CONFIDENTIAL INFORMATION to BION including all approved copies thereof.
5. FORCE MAJEURE. Neither party will be liable to the other and neither
-------------
will be deemed in default hereunder for any failure or delay caused by or
arising out of the following conditions of force majeure: fire, explosion,
war, riot, strike, walk-out, labor controversy, naturally occurring flood,
shortage of water, power, labor, transportation facilities or necessary
materials or supplies, default or failure of carriers, act of God or public
enemy, any law, act or order of any court, board, government or other direct
authority of competent jurisdiction, or any other direct cause (whether or not
of the same character as the foregoing) beyond the reasonable control of such
party.
6. ASSIGNMENTS. No rights or obligations of BFF under this AGREEMENT
-----------
may be assigned without prior written consent of BION except to a successor or
assignee of all rights of BFF in and to the Site who agrees to be bound by and
assume all of BFF's obligations as set forth in this AGREEMENT. This
provision shall also apply to any person or entity required to sign a
confidentiality/non-disclosure agreement pursuant to this AGREEMENT.
7. BINDING EFFECT; GOVERNING LAW. This AGREEMENT will be binding upon
-----------------------------
and inure to the benefit of the PARTIES hereto and their respective successors
and permitted assigns. The laws of the state of Colorado, without regard to
choice of law principles, shall apply to the interpretation and construction
of this AGREEMENT.
8. SEVERABILITY. Each provision of this AGREEMENT will be considered
------------
severable and if any provision of this AGREEMENT shall be invalid, illegal or
unenforceable, it will not affect or impair the validity, legality or
enforceability of this AGREEMENT itself, or of any other provision hereof.
9. REMEDIES. BFF agrees that the remedy at law for a breach of Section
--------
1, Section 4, or Section 11 of these Terms and Conditions will be inadequate
and that BION will be entitled to injunctive relief for such a breach, which
relief will be cumulative to other remedies and relief ordinarily available
under such circumstances and will not be construed as an exclusive remedy or
relief.
10. NOTICES. Notices and other communications required by laws,
-------
ordinances, rules, regulations and orders of public authorities, or permitted
to be given hereunder, will be in writing, and will be deemed given to a party
when delivered personally, or five (5) days after being deposited in the
United States mail with sufficient postage affixed, registered or certified
and return receipt requested, addressed to such party at the address below:
To BION at: Bion Technologies, Inc.
555 17th Street, Suite 3310
Denver, CO 80202
Attn: Duane Stutzman
To BFF at: Crystal Springs, LLC and
Bowman Family Farms, Inc.
415 Main Street
Wray, CO 80758
Attn: Michael Bowman
or at any such other address or addresses as may be given by either of them to
the other in writing from time to time.
<PAGE>
11. INDEMNIFICATION AND HOLD HARMLESS. BFF agrees to indemnify, defend,
---------------------------------
and hold harmless BION and BION's employees and agents from any claim, loss,
damage, cost, expense or liability arising out of or relating to the
negligence, gross negligence or willful misconduct of BFF or BFF's employees
or agents in connection with any services to be performed or provided under
this AGREEMENT.
12. Any claim, controversy, dispute or interpretation of this Agreement
other than those concerning money due to BION from BFF or matters set forth at
sections 1, 4 and 11 of these "Standard Terms and Conditions", that is not
resolved by the Parties within 30 days shall be submitted to mediation and, if
no agreement is reached within 60 days thereafter, to binding arbitration
which shall be the exclusive means of resolution if, and only if, commenced
within the following 30 days.
<PAGE>
Bion Technologies, Inc.
- -----------------------
ATTACHMENT C
INVESTMENT REPRESENTATION AGREEMENT
-------------------------------------
Bion Environmental Technologies, Inc.
555 17th St. Suite 3310
Denver, CO 80202
Gentlemen
This Investment Representation Agreement ("IRA") is entered into between
Crystal Springs, LLC and Bowman Family Farms, Inc. (hereinafter "BFF") and
Bion Environmental Technologies, Inc. ("Company") pursuant to the Bion NMS'
Installment Agreement ("Agreement") dated October 8, 1997 and entered into
between BFF and Bion Technologies, Inc. ("Bion"), a wholly owned subsidiary of
the Company. This IRA is attached to the Agreement as Attachment C.
1. Subscription. BFF hereby agrees to purchase in installments from the
------------
Company, pursuant to Section 5, A, i through iv, of the Agreement, 1,000,000
Units at a purchase price of $3.00 (in cash) per Unit where one Unit shall
consist of one share of the restricted and legended (requiring a two year hold
from purchase date prior to registration or sale by agreement) Common Stock of
the Company and one warrant (in the form attached hereto) to purchase one
share of the Company*s restricted and legended (requiring a two year hold from
purchase date prior to registration or sale by agreement) common stock at a
price of $7.00 per share (collectively the "Securities") in a private
negotiated transaction pursuant to Section 3(b) and/or 4(2) or other
applicable provisions of the Securities Act of 1933, as amended ("Act"), (and
the regula-tions promulgated thereunder). BFF*s shall purchase the Units
according to the following schedule in accordance with Section 5, A, i through
iv, of the Agreement:
(a) 166,667 Units upon BFF*s payment to Bion of $600,000, 15 days
following receipt of payment from the first draw, $500,001 of which is payment
for the Units, the balance for Bion fees in connection with Bion*s performance
obligations pursuant to the Agreement;
(b) 166,667 of the Units upon BFF*s payment to Bion of $600,000, 15 days
following receipt of payment from the first monthly draw, $500,001 of which is
payment for the Units, the balance for Bion fees in connection with Bion*s
performance obligations pursuant to the Agreement;
(c) 166,667 Units upon BFF*s payment to Bion of $700,000, 15 days following
receipt of payment from the second monthly draw, $500,001 of which is payment
for the Units, the balance for Bion fees in connection with Bion*s performance
obligations pursuant to the Agreement;
(d) 166,667 Units upon BFF*s payment to Bion of $550,000, 15 days following
receipt of payment from the third monthly draw, $500,001 of which is payment
for the Units, the balance for Bion fees in connection with Bion*s performance
obligations pursuant to the Agreement;
(e) 166,666 Units upon BFF*s payment to Bion of $550,000, 15 days following
the receipt of payment from the fourth through the fifth monthly draws,
$499,998 of which is payment for the Units, the balance for Bion fees in
connection with Bion*s performance obligations pursuant to the Agreement;
The warrants purchased herein are exercisable in whole or in part at any
time or from time to time on or after the purchase dates described in
paragraphs (a) through (f) above but not later than 3:30 p.m., Denver time on
June 30, 1998.
2. Representations and Warranties. BFF warrants and represents to the
--------------------------------
Company (and its shareholders, affiliates and agents) that:
a. The Securities are being acquired by BFF for investment for its own
account, and not with a view to the offer or sale in connection therewith, or
the distribution thereof, and that the undersigned is not now, and will not in
the future, participate, directly or indir-ectly, in an underwriting of any
such undertaking except in compliance with applicable registration provisions
of the Act.
b. BFF will not take, or cause to be taken, any action that would cause
it or the Company to be deemed an underwriter of the Securities, as defined in
Section 2(11) of the Act.
c. BFF has been afforded an opportunity to examine such documents and
obtain such information concerning the Company as it may have requested,
including without limitation all publicly available information, and has had
the opportunity to request such other information (and all information so
requested has been provided) for the purpose of verifying the information
furnished to it and for the purpose of answering any questions it may have had
concerning the business affairs of the Company and it has reviewed to the
extent desired by it the Articles, Bylaws and minutes of the Company,
documentation concerning the Company's financial condition, assets,
liabilities, share ownership and capital structure, minimal operations and
sales, limited assets, and other material documents.
d. BFF (and its officers, directors, principals and agents as
applicable) have had an opportunity to personally ask questions of, and
receive answers from, one or more of the officers and directors of the Company
and/or the attorneys for the Company to ascertain and verify the accuracy and
completeness of all material information regarding the Company, its business
and its officers, directors, and promoters. BFF has had an opportunity to ask
questions of and receive answers from duly designated repre-sentatives of the
Company concerning the terms and conditions pursuant to which the Securities
are being acquired by it.
e. BFF understands that its acquisition of the Securities is a
negotiated private transaction.
f. By reason of its knowledge and experience (and that of its
principals, officers and directors and their respective attorneys, advisors
and investment bankers) in financial and business matters in general, and
investments in particular, it is capable of evaluating the merits and risks of
an investment in the Securities.
g. BFF is capable of bearing the economic risks of an investment in the
Securities.
h. BFF present financial condition is such that it is under no present or
contemplated future need to dispose of any portion of the Securities to
satisfy any existing or contemplated undertaking, need or indebtedness.
i. If required to do so, BFF has retained to advise it, as to the merits
and risks of a prospective investment in the Securities, a purchaser
representative, legal counsel, financial and accounting advisors, investment
bankers, etc.
<PAGE>
j. BFF hereby represents and warrants to the Company that all of the
representations, warranties and acknowledgements contained in this agreement
are true, accurate and complete as of the date herein and acknowledges that
the Company, its officers, directors, agents, and affiliates have relied on
its representations and warranties herein in consenting to the restricted
issuance and/or transfer of the Securities and the undersigned hereby agrees
to indemnify and hold the Company (together with its respective officers,
directors, agents and affiliates) harmless with respect to any and all
expenses, claims or litigation (including without limitation reasonable
attorneys' fees related thereto) arising from or related to breach of any
warranty or representation herein.
3. Restrictions on Transferability: BFF undersigned acknowledges and
--------------------------------
understands that the Securities are unregistered and must be held indefinitely
unless they are subsequently registered under the Act or an exemption from
such registration is available.
BFF further acknowledges that it is fully aware of the applicable
limitations on the resale of the Securities. Rule 144 (the "Rule")
promulgated under the Securities Act of 1933 permits sales of "Restricted
Securities" held for not less than one year and upon compliance with the
require-ments of such Rule. BFF agrees to waive its rights pursuant to Rule
144*s one year holding period, and agrees to hold the Securities for no less
than two years prior to registration or sale. BFF further agrees to hereby
waive any and all rights, if any, pursuant to Regulation S under the
Securities Act of 1933 or any other rule or regulation pertaining to the sale
or transfer of the Securities to a non-U.S. person or entity which may have
the effect of reducing Rule 144*s holding period. Further, the Securities
must be sold in an active market and appropriate information relating to the
Company must be generally available in order to effectuate a transaction
pursuant to the Rule by an affiliate of the Company.
There is currently only an extremely limited and "thin" trading market in
securities of the Company on the over-the-counter market, and there is no
assurance that it will continue or that any active trading market will ever
develop, or if such a trading market develops, that it will grow and/or
continue.
Any and all certificates representing the Securities and any and all
securities issued in replacement or conversion thereof or in exchange therefor
shall bear the following legends, or ones substantially similar thereto, which
the undersigned has read and understands:
The securities represented by this Certificate have not been registered
under the Securities Act of 1933 (the "Act") and are "restricted securities"
as that term is defined in Rule 144 under the Act. The securities may not be
offered for sale, sold or otherwise transferred except pursuant to an
effec-tive registration statement under the Act or pur-suant to an exemption
from registration under the Act, the availability of which is to be
established to the satisfaction of the Company. The holder of these
securities has agreed to a two year hold prior to registration.
In addition, these securities may not be sold or transferred pursuant to
regulation S under the Act, or pursuant to any other rule or regulation
pertaining to the sale or transfer of securities to a non-U.S. person or
entity, which may have the effect of reducing Rule 144's holding period to
less than one year.
<PAGE>
BFF further agrees that the Company shall have the right to issue a stop
transfer instruction to its transfer agent, if any, or to note a stop transfer
instruction in its stockholder records, and it acknowledges that the Company
has informed it of its intention to issue such instructions when and if
necessary.
4. Notices. Any notices or other communications required or permitted
-------
hereby shall be sufficiently given if sent by regis-tered or certified mail,
postage prepaid, return receipt requested, and, if to the Company, at the
address to which this IRA is addressed, and if to the undersigned, at the
address set forth below my signature hereto, or to such other addresses as
either you or the undersigned shall designate to the other by notice in
writing.
5. Successors and Assigns. This IRA shall be binding upon and shall
------------------------
inure to the benefit of the parties hereto and to the successors and assigns
of the Company and to the personal and legal representatives, heirs,
guardians, successors and permitted assignees of the undersigned.
6. Applicable Law. This IRA shall be governed by and construed in
---------------
accordance with the laws of the State of Colorado and, to the extent it
involves any United States statute, in accordance with the laws of the United
States, and jurisdiction and venue for any dispute related hereto shall be in
a court of general jurisdiction located in Denver, Colorado.
Crystal Springs, LLC and
Bowman Family Farms, Inc., Purchaser
By: /s/ Michael A. Bowman Date: November 13, 1997
---------------------------------- -------------------
signature
Michael A. Bowman
------------------------
print or type name of signatory
415 Main St., Wray, CO 80758
-----------------------------------
Address
ACCEPTED:
Bion Environmental Technologies, Inc.
By: /s/ Jon Northrop Date: November 13, 1997
------------------------ ---------------------
Authorized Officer (signature)
Jon Northrop
---------------
print name of officer
<PAGE>
Void after 3:30 p.m., Denver Time, on JUNE 30, 1998
Warrant to Purchase
_______ Shares
of Common Stock
CLASS B WARRANT TO PURCHASE COMMON STOCK
OF
BION ENVIRONMENTAL TECHNOLOGIES, INC.
This is to certify that, FOR VALUE RECEIVED, CRYSTAL SPRINGS, LLC AND
BOWMAN FAMILY FARMS, INC. ("BFF") or registered assigns ("Holder), is entitled
to purchase, subject to the provisions of this Warrant and the Bion NMS'
Installment Agreement dated __________, from Bion Environmental Technologies,
Inc., a Colorado corporation ("Company"), at any time on or after PURCHASE
DATE, and not later than 3:30 p.m., Denver Time, on JUNE 30, 1998, unless
extended as provided in Section (a) below, UP TO _________ SHARES of
restricted and legended (requiring a two year hold prior to registration or
sale) common stock, no par value per share, of the Company ("Common Stock") at
a purchase price per share of $7.00 (in cash). The number of shares of Common
Stock to be received upon the exercise of this Warrant and the price to be
paid for a share of Common Stock may be adjusted from time to time as
hereinafter set forth. The shares of Common Stock deliverable upon such
exercise, and as adjusted from time to time, are hereinafter sometimes
referred to as "Warrant Stock" and the exercise price of a share of Common
Stock in effect at any time and as adjusted from time to time is hereinafter
sometimes referred to as the "Exercise Price."
(a) Exercise of Warrant. Subject to the provisions of Section (1)
---------------------
hereof, this Warrant may be exercised in whole or in part at any time or from
time to time on or after PURCHASE DATE, but not later than 3:30 p.m., Denver
time on JUNE 30, 1998, or if such date is a day on which banking institutions
are authorized by law to close, then on the next succeeding day which shall
not be such a day, by presentation and surrender hereof to the Company or at
the office of its stock transfer agent, if any, with the Purchase Form annexed
hereto duly executed and accompanied by payment of the Exercise Price (in cash
or equivalent value) for the number of shares specified in such form, together
with all federal and state taxes applicable upon such exercise. The Company
may unilaterally extend the time within which the Warrant may be exercised but
is not obligated to do so, but not longer than twelve (12) months. The
Company may unilaterally reduce the exercise price per share. If this Warrant
should be exercised in part only, the Company shall, upon surrender of this
Warrant for cancellation, execute and deliver a new Warrant evidencing the
right hereunder. Upon receipt by the Company of this Warrant at the office or
agency of the Company, in proper form for exercise, the Holder shall be deemed
to be the holder of record of the shares of Common Stock issuable upon such
exercise, notwithstanding that the stock transfer books of the Company shall
then be closed or that certificates representing such shares of Common Stock
shall not then be actually delivered to the Holder.
(b) Reservation of shares. The Company, hereby agrees that at all times
---------------------
subsequent hereto there shall be reserved for issuance and/or delivery upon
exercise of this Warrant such number of shares of its Common Stock as shall be
required for issuance or delivery upon exercise of this Warrant.
(c) Fractional Shares. No fractional shares or scrip representing
------------------
fractional shares shall be issued upon the exercise of this Warrant. With
respect to any fraction of a share called for upon any exercise hereof, the
Company shall pay to the Holder an amount in cash equal to such fraction
multiplied by the current market value of such fractional share, determined as
follows:
(1) If the Common Stock is listed on a national securi-ties exchange or
admitted to unlisted trading privileges on such exchange, the current value
shall be the last reported sale price of the Common Stock on such exchange on
the last business day prior to the date of exercise of this Warrant or if no
such sale is made on such day, the average closing bid and asked prices for
such day on such exchange; or
(2) If the Common Stock is not so listed or admitted to unlisted trading
privileges, the current value shall be the mean of the last reported bid and
asked prices reported by the National Association of Securities Dealers
Automated Quotation System (or, if not so quoted on NASDAQ, by the National
Quotation Bureau, Inc.) on the last business day prior to the day of the
exercise of this Warrant; or
(3) If the Common Stock is not so listed or admitted to unlisted trading
privileges and bid and asked prices are not so reported, the current value
shall be an amount, not less than book value, determined in such reasonable
manner as may be prescribed by the Board of Directors of the Company, such
determination to be final and binding on the Holder.
(d) Exchange, Assignment or Loss of Warrant. This Warrant is
--------------------------------------------
exchangeable, without expense, at the option of the Holder, upon presentation
--
and surrender hereof to the Company or at the office of its stock transfer
agent, if any, for other Warrants of different denominations entitling the
Holder thereof to purchase in the aggregate the same number of shares of
Common Stock purchasable hereunder. Any assignment hereof shall be made by
surrender of this Warrant to the Company or at the office of its stock
transfer agent, if any, with the Assignment Form annexed hereto duly executed
and funds sufficient to pay any transfer tax; whereupon the Company shall,
without charge, execute and deliver a new Warrant in the name of the assignee
named in such instrument of assignment and this Warrant shall promptly be
cancelled. This Warrant may be divided upon presentation hereof at the office
of the Company or at the office of its stock transfer agent, if any, together
with a written notice specifying the names and denominations in which new
Warrants are to be issued and signed by the Holder hereof. The terms
"Warrant" and "Warrants" as used herein include any Warrants issued in
substitution for a replacement of this Warrant, or into which this Warrant may
be divided or exchanged. Upon receipt by the Company of evidence satisfactory
to it of the loss, theft, destruction or mutilation of this Warrant, and (in
the case of loss, theft or destruction) of reasonably satisfactory
indemnification, and upon surrender and cancellation of this Warrant, if
mutilated, the Company will execute and deliver a new Warrant of like tenor
and date. Any such new Warrant executed and delivered shall constitute an
additional contractual obligation on the part of the Company, whether or not
this Warrant so lost, stolen, destroyed, or mutilated shall be at any time
enforceable by anyone.
(e) Rights of the Holder. The Holder shall not, by virtue hereof, be
-----------------------
entitled to any rights of a shareholder in the Company, either at law or
equity, and the rights of the Holder are limited to those expressed in the
Warrant and are not enforceable against the Company except to the extent set
forth herein.
<PAGE>
(f) Adjustments to Exercise Price and Number of Shares.
---------------------------------------------------------
(1) Adjustment of Number of Shares. Anything in this Section (f) to the
------------------------------
contrary notwithstanding, in case the Company shall at any time issue Common
Stock or Convertible Securities by way of dividend or other distribution on
any stock of the Company or subdivide or combine the outstanding shares of
Common Stock, the Exercise Price shall be proportionately decreased in the
case of such issuance (on the day following the date fixed for determining
shareholders entitled to receive such dividend or other distribution) or
decreased in the case of such subdivision or increased in the case of such
combination (on the date that such subdivision or combination shall become
effective).
(2) No Adjustment for Small Amounts. Anything in this Section (f) to the
-------------------------------
contrary notwithstanding, the Company shall not be required to give effect to
any adjustment in the Exercise Price unless and until the net effect of one or
more adjustments, determined as above provided, shall have required a change
of the Exercise Price by at least one cent, but when the cumulative net effect
of more than one adjustment so determined shall be to change the actual
Exercise Price by at least one cent, such change in the Exercise Price shall
thereupon be given effect.
(3) Number of Shares Adjusted. Upon any adjustment of the Exercise
----------------------------
Price, the Holder of this Warrant shall thereafter (until another such
adjustment) be entitled to purchase, at the new Exercise Price, the number of
shares, calculated to the nearest full share, obtained by multiplying the
number of shares of Common Stock initially issuable upon exercise of this
Warrant by the Exercise Price in effect on the date hereof and dividing the
product so obtained by the new Exercise Price.
(4) Common Stock Defined. Whenever reference is made in this Section (f)
--------------------
to the issue or sale of shares of Common Stock, the term "Common Stock" shall
mean the Common Stock of the Company of the class authorized as of the date
hereof and any other class of stock ranking on a parity with such Common
Stock. However, subject to the provisions of Section (i) hereof, shares
issuable upon exercise hereof shall include only shares of the class
designated as Common Stock of the Company as of the date hereof.
(g) Officer's Certificate. Whenever the Exercise Price shall be adjusted
---------------------
as required by the provisions of Section (f) hereof, the Company shall
forthwith file in the custody of its Secretary or an Assistant Secretary at
its principal office, and with its stock transfer agent, if any, an officer's
certificate showing the adjusted Exercise Price determined as herein provided
and setting forth in reasonable detail the facts requiring such adjustment.
Each such officer's certificate shall be made available at all reasonable
times for inspection by the Holder and the Company shall, forthwith after each
such adjustment, deliver a copy of such certificate to the Holder. Such
certificate shall be conclusive as to the correctness of such adjustment.
(h) Notices to Warrant Holders. So long as this Warrant shall be
-----------------------------
outstanding and unexercised (i) if the Company shall pay any dividend or make
any distribution upon the Common Stock or (ii) if the Company shall offer to
the Holders of Common Stock for subscription or purchase by them any shares of
stock of any class or any other rights or (iii) if any capital reorganization
of the Company, reclassification of the capital stock of the Company,
consolidation or merger of the Company with or into another corporation, sale,
lease or transfer of all or substantially all of the property and assets of
the Company to another corporation, or voluntary or involuntary dissolution,
liquidation or winding up of the Company shall cause to be delivered to the
Holder, at least ten days prior to the date specified in (x) or (y) below, as
the case may be, a notice containing a brief description of the proposed
action and stating the date on which (x) a record is to be taken for the
purpose of such dividend, distribution or rights, or (y) such
reclassification, reorganization, consolidation, merger, conveyance, lease,
dissolution, liquidation or winding up is to take place and the date, if any,
is to be fixed as of which the Holders of Common Stock of record shall be
entitled to exchange their shares of Common Stock for securities or other
property deliverable upon such reclassification, reorganization,
consolidation, merger, conveyance, dissolution, liquidation or winding up.
(i) Reclassification, Reorganization or Merger. In case of any
---------------------------------------------
reclassification, capital reorganization or other change of outstanding shares
of Common Stock of the Company (other than a change in par value, or from no
par value to par value, or as a result of an issuance of Common Stock by way
of dividend or other distribution or of a subdivision or combination), or in
case of any consolidation or merger of the Company with or into another
corporation (other than a merger with a subsidiary in which merger the Company
is the continuing corporation and which does not result in any
reclassification, capital reorganization or other change of outstanding shares
of Common Stock of the class issuable upon exercise of this Warrant) or in
case of any sale or conveyance to another corporation of the property of the
Company as an entirety or substantially as an entirety, the Company shall
cause effective provision to be made so that the Holder shall have the right
thereafter, by exercising this Warrant, to purchase the kind and amount of
shares of stock and other securities and property receivable upon such
reclassification, capital reorganization or other change, consolidation,
merger, sale or conveyance. Any such provision shall include provision for
adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Warrant. The foregoing provisions of this
Section (i) shall similarly apply to successive reclassifications, capital
reorganizations and changes of shares of Common Stock and to successive
consolidations, mergers, sales or conveyances. In the event that in any such
capital reorganization or reclassifi-cation, consolidation, merger, sale or
conveyance, additional shares of Common Stock shall be issued in exchange,
conversion, substitution or payment, in whole or in part, for or of a security
of the Company other than Common Stock, any such issue shall be treated as an
issue of Common Stock covered by the provisions of subsection (f) hereof with
the amount of the consideration received upon the issue thereof being
determined by the Board of Directors of the Company, such determination to be
final and binding on the Holder.
(j) Transfer to Comply with the Securities Act of 1933.
----------------------------------------------------------
(1) This Warrant or the Warrant Stock or any other security issued or
issuable upon exercise of this Warrant may not be sold, transferred or
otherwise disposed of except to a person who, in the opinion of counsel for
the Company, is a person to whom this Warrant or such Warrant Stock may
legally be transferred pursuant to Section (d) hereof without registration and
without the delivery of a current prospectus under the Securities Act with
respect thereto and then only against receipt of an agreement of such person
to comply with the provisions of this Section (j) with respect to any resale
or other disposition of such securities.
(2) The Company may cause the following legend to be set forth on each
certificate representing Warrant Stock or any other security issued or
issuable upon exercise of this Warrant not theretofore distributed to the
public or sold to underwriters for distribution to the public pursuant to
Section (k) hereof, unless counsel for the Company is of the opinion as to any
such certificate that such legend is unnecessary:
The securities represented by this certificate may not be offered for
sale, sold or otherwise transferred except pursuant to an effective
registration statement under the Securities Act of 1933 (the "Act"), or
pursuant to an exemption from registration under the Act the availability of
which is to be established to the satisfaction of the Company, provided
however that BFF agrees to waive any rights pursuant to Rule 144*s one year
holding period, and hereby agrees to hold said Warrant Stock for a minimum of
two years prior to registration or sale. Additionally, BFF agrees not to sell
the Warrant Stock pursuant to Regulation S under the Act.
(l) Applicable Law. This Warrant shall be governed by, and construed in
--------------
accordance with, the laws of the State of Colorado.
Bion Environmental Technologies, Inc.
Date: _______________ By:
_________________________________________________
Authorized Officer
<PAGE>
PURCHASE FORM
Dated ________________
The undersigned hereby irrevocably elects to exercise the B WARRANT to
the extent of purchasing _________ shares of BION ENVIRONMENTAL TECHNOLOGIES,
INC. Common Stock and hereby makes payment of $________ in payment of the
actual exercise price thereof.
__________________
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name _________________________________________________
(please typewrite or print in block letters)
Address_______________________________________________
Signature__________________________________________
_____________________________
FOR VALUE RECEIVED, ____________________________ hereby sells, assigns,
and transfers unto
Name________________________________________________
(please typewrite or print in block letters)
Address______________________________________________
the right to purchase Common Stock represented by this Warrant to the extent
of __________ shares as to which such right is exercis-able and does hereby
irrevocably constitute and appoint ______________, attorney, to transfer the
same on the books of the Company with full power of substitution in the
premises.
Signature _______________________________
Dated: _______________________
<PAGE>
Bion Technologies, Inc.
- -----------------------
BION NMS' INSTALLATION AGREEMENT
ADDENDUM
This addendum dated October 8, 1997 (the "ADDENDUM") is the first
addendum to the agreement (the "AGREEMENT") between Bion Technologies, Inc.
(hereinafter called "BION") and Crystal Springs, LLC and Bowman Family Farms,
Inc. ("BFF") (collectively BION and BFF are the "PARTIES") dated October 8,
1997 as amended __________, 1997. To the extent that there is any conflict or
contradiction between the terms and conditions of this ADDENDUM and the
AGREEMENT to which it is attached, the terms and conditions of this ADDENDUM
shall control. To the extent that there is any conflict or contradiction
between the terms and conditions of this ADDENDUM and the AGREEMENT to which
it is attached and any subsequent document to which they are attached, the
terms and conditions of this ADDENDUM shall control absent express language to
the contrary.
1. The following additional clause shall apply to SECTION 5, BION
COMPENSATION:
D. To the extent that the aggregate capital cost to design and construct the
twelve Bion NMS systems for the twelve 27,000 finishing hog UNITS contemplated
in PHASE I of the PROJECT exceeds the aggregate standard cost in the "Murphy
Model" for waste handling installation (which BFF and BION each agree is
between $45 and $50 per finishing hog UNIT), BION will offset such excess cost
by payment to BFF over a three year period commencing with the first sale of
bio-solids generated by such Bion NMS of an additional royalty on such sale of
bio-solids. In any subsequent phases of the PROJECT, to the extent that the
actual capital cost is less than the aggregate standard cost in the "Murphy
Model" BFF shall make available to BION for the remaining term of this
AGREEMENT, a revolving credit line on commercial terms (prime plus 1/2 point)
an amount equal to one half of such capital savings on a cumulative basis.
2. The following additional clauses shall apply to SECTION 7, BIO-SOLIDS:
D. BFF may elect to receive up to 10% of the bio-solids harvested, in the
physical form that is standard for harvested bio-solids from the site, as an
in-kind royalty for use by BFF for field crop application only. Should BFF
elect to receive the bio-solids for this in-kind royalty in a form that
requires BION to process such bio-solids in any manner, BFF shall pay BION the
costs of such processing.
E. BION shall pay BFF a royalty of $2.00 per cubic yard (or the equivalent)
for all bio-solids harvested and removed from the site by BION or its agents.
Should BFF elect to receive any of the up to 10% bio-solids as in-kind royalty
from any harvest of bio-solids BFF will forgo the $2.00 royalty on such
bio-solids.
F. BION and BFF hereby establish a reciprocal pricing arrangement whereby
BION has the right to sell up to 80% of the bio-solids produced by the Bion
NMS systems contemplated by this AGREEMENT to BFF for a price of $4.00 per
liquid ton of bio-solids (at approximately 12% solids content) for the first
two years of bio-solids production. Additionally, BFF has the right to sell
all or a portion of the 10% bio-solids in-kind royalty received from BION to
BION for a price of $4.00 per liquid ton of bio-solids (at approximately 12%
solids content) for the term of this AGREEMENT, provided, however, that this
right can only be exercised if BION has demand in excess of the 90% bio-solids
available to BION under the terms of this AGREEMENT.
3. SALES REPRESENTATION AGREEMENT
BION and BFF agree that BFF (or an entity formed by BFF) shall become the
exclusive sales representative for BION systems installations for the duration
of this AGREEMENT in Yuma County, Colorado, and Dundy County, Nebraska. In
the event that a sale is made, a cash commission in an amount to be negotiated
for each sale will be paid by BION to BFF plus a royalty agreement will be
established with terms and conditions substantially equivalent to the royalty
described in paragraph 2. E of this ADDENDUM to the AGREEMENT, which royalty
shall be reduced by any royalty due to any other party.
4. OPTION FOR PHASE II
A. BION hereby grants BFF the following option (the "OPTION") covering BION'S
services for the design, construction and operation of PHASE II (PHASE I
consisting of the first 330,000 finishing hogs, PHASE II consisting of up to
an additional 330,000 finishing hogs raising the total number of finishing
hogs to up to 660,000) of the hog facility PROJECT described in ATTACHMENT A
of the AGREEMENT. This option for PHASE II may be exercised by written notice
from BFF to BION and shall remain in effect for a period of twelve (12) months
commencing on the date that this ADDENDUM is executed.
B. Under the terms of this OPTION, BION and BFF agree that all of the terms
and conditions of the AGREEMENT shall apply to the agreement covering PHASE II
of the PROJECT (the "PHASE II AGREEMENT") when the PHASE II AGREEMENT is
executed with the following changes and/or exceptions:
i. SECTION 5, BION COMPENSATION shall be amended in the PHASE II AGREEMENT to
read:
"A. Each site where a Bion NMS is being installed has its unique character.
This requires BION to individually design the application of the Bion NMS for
each site at which it is to be installed. BION's goal is to design each Bion
NMS application to complement the existing site as much as practicable. BION
agrees to perform the services described in Attachment A and such other
activities as required by this PHASE II AGREEMENT. BFF agrees to pay BION in
consideration of this PHASE II AGREEMENT the aggregate sum of $800,000 payable
as follows:
i. $100,000, 15 days following receipt of payment from the first draw from
the construction loan negotiated by BFF for this PHASE II of the PROJECT,
ii. $100,000, 15 days following receipt of payment from the first monthly
draw from the construction loan negotiated by BFF for this PHASE II of the
PROJECT,
iii. $100,000, 15 days following receipt of payment from the second
monthly draw from the construction loan negotiated by BFF for this PHASE II of
the PROJECT,
iv. $31,250, 15 days following receipt of payment from the third through
the eighteenth monthly draws from the construction loan negotiated by BFF for
this PHASE II of the PROJECT,
provided, however, if BION and BFF agree on a schedule of development whereby
PHASE II of the PROJECT is anticipated to be completed in less than the 18
months, this payment schedule shall be compressed on a ratable basis. Not
withstanding any of the above, upon completion of the construction of all of
the systems contemplated by this PHASE II AGREEMENT, all amounts are due and
payable.
B. Late payment charges of 1.5% per month, payable to BION, will be due if
payments are not received within 15 days of due date. BFF will be responsible
for any and all reasonable legal and/or court expenses incurred by BION in
BION's attempt to recover any unpaid amounts in case of failure of BFF to pay
BION for services performed and/or expenses incurred for BFF's account.
C. For WORK provided by BION beyond the scope of services described in
ATTACHMENT A, or for unforeseen circumstances or changes in the scope of
services required by BFF, BION shall be compensated for such services as
negotiated by BION and BFF.
D. To the extent that the actual capital cost to design and construct the Bion
NMS systems contemplated in PHASE II is less than the aggregate standard cost
in the "Murphy Model" BFF shall make available to BION a credit line on
commercial terms (prime plus 1/2 point) an amount equal to one half of such
capital savings on a cumulative basis."
ii. The terms and conditions of SECTION 6, BION NMS SYSTEM OPERATION
COMPENSATION AND PAYMENT shall be negotiated to cover the expanded operation
that is a part of PHASE II of the PROJECT.
C. This OPTION is only exercisable if the material conditions related to PHASE
II of the PROJECT are substantially equivalent to PHASE I.
The PARTIES have caused this ADDENDUM to be executed this _____ day of
________, 1997.
CRYSTAL SPRINGS, LLC and
BION TECHNOLOGIES, INC.: BOWMAN FAMILY FARMS, Inc.:
By: _____________________________________ By:
_________________________________
Title: ___________________________________ Title:
________________________________
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> SEP-30-1997
<CASH> 6,169
<SECURITIES> 0
<RECEIVABLES> 56,157
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 592,711
<PP&E> 233,007
<DEPRECIATION> 0
<TOTAL-ASSETS> 950,198
<CURRENT-LIABILITIES> 974,592
<BONDS> 0
0
95,482
<COMMON> 9,075,870
<OTHER-SE> (9,509,226)
<TOTAL-LIABILITY-AND-EQUITY> 950,198
<SALES> 24,837
<TOTAL-REVENUES> 24,837
<CGS> 0
<TOTAL-COSTS> 93,554
<OTHER-EXPENSES> 469,267
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,904
<INCOME-PRETAX> (613,501)
<INCOME-TAX> 0
<INCOME-CONTINUING> (613,501)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (613,501)
<EPS-PRIMARY> (.16)
<EPS-DILUTED> 0
</TABLE>
