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 December 31, 1996 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
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 equity, as of February 18, 1997:
Common Stock, No Par Value, 1,946,326
Series B Convertible Preferred Stock, $.001
Par Value, 18,834 shares
Bion Environmental Technologies, Inc. Form 10-QSB
December 31, 1996
INDEX
PART I FINANCIAL INFORMATION PAGE NO.
ITEM 1 FINANCIAL STATEMENTS
Consolidated Balance Sheets:
June 30, 1996 and
December 31, 1996.................. F2
Consolidated Statements of Operations:
For the Six Month Periods Ended
December 31, 1995 and
December 31, 1996.................. F3
Consolidated Statements of Operations:
For the Three Month Periods Ended
December 31, 1995 and
December 31, 1996.................. F4
Consolidated Statements of Cash Flows:
For the Six Month Periods Ended
December 31, 1995 and
December 31, 1996.................. F5
Consolidated Statement of Changes in
Stockholders' Equity.................... F6
Notes to Consolidated Financial Statements F7-F10
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATION........................ 3
PART II OTHER INFORMATION
ITEMS 1-6 ........................................ 15
FINANCIAL INFORMATION
PART I
ITEM 1. FINANCIAL STATEMENTS
BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31, June 30,
1996 1996
(Unaudited) (Audited)
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 8,035 $ 118,612
Contract receivables 12,738 22,070
Work in progress (net of allowance of $20,000) 241,803 219,686
Prepaid expenses and other 0 2,128
Total current assets 262,576 362,496
Property and equipment, net 207,608 66,216
Other assets
Patents, net 39,407 40,778
Deferred long term contract costs 82,433 82,433
Other 7,282 4,387
Total other assets 129,122 127,598
Total assets $ 599,306 $ 556,310
Liabilities and Stockholder (Deficit)
Current liabilities
Accounts payable and accrued liabilities $ 397,870 $ 228,712
Accounts payable - related party 0 23,351
Notes payable - stockholders 82,171 96,050
Capital lease obligations 45,544 18,482
Accrued payroll - officers 66,750 206,667
Total current liabilities 592,335 573,262
Long-term liabilities
Notes payable - stockholders 2,092,035 2,007,035
Line of credit 0 0
Capital lease obligation 131,424 43,047
Deferred contract revenue 206,500 206,500
Total liabilities 3,022,294 2,829,844
Commitments and contingency
Stockholders' (deficit)
Preferred stock, $.001 par value 10,000,000
shares authorized, 18,834 series B
(December 31, 1996 and June 30, 1996)
shares issued and outstanding 95,482 95,482
Common stock, no par value, 100,000,000
shares authorized, 1,903,369 (December 31,
1996) and 1,683,777 (June 30, 1996) shares
issued and outstanding 4,181,736 3,485,270
Common stock subscribed 330,158 49,538
Accumulated deficit (7,030,364) (5,903,824)
Total stockholders (deficit) (2,422,988) (2,273,534)
Total liabilities and stockholders
(deficit) $ 599,306 $ 556,310
</TABLE>
See Notes to Consolidated Financial Statements
BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Six Months Ended
December 31
1996 1995
(Unaudited) (Unaudited)
<S> <C> <C>
Contract revenues $ 61,807 $ 84,988
Contract costs 285,702 65,132
Gross profit (loss) (223,895) 19,856
General and administrative expenses 796,533 746,372
Loss from operations (1,020,428) (726,516)
Other income (expense)
Interest income 107,194 21
Interest expense (141,334) (93,936)
Research and development (66,887) (37,818)
Gain (loss) on marketable equity
securities 0 173,228
Net (loss) $(1,121,455) $(685,021)
(Loss) per weighted average share
of common stock $ (0.63) $ (0.45)
Weighted common shares outstanding 1,768,698 1,538,170
</TABLE>
See Notes to Consolidated Financial Statements
BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Three Months Ended
December 31,
1996 1995
(Unaudited)(Unaudited)
<S> <C> <C>
Contract revenues $ 26,260 $ 46,803
Contract costs 173,520 38,130
Gross profit (loss) (147,260) 8,673
General and administrative expenses 455,101 433,146
Loss from operations (602,361) (424,473)
Other income (expense)
Interest income 2,064 21
Interest expense (73,399) (53,060)
Research and development (32,336) (21,897)
Gain (loss) on marketable
equity securities 0 (39,316)
Net (loss) $(706,032) $(538,725)
(Loss) per weighted average share
of common stock $ (0.39) $ (0.34)
Weighted common shares outstanding 1,819,820 1,578,960
</TABLE>
See Notes to Consolidated Financial Statements
BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Six Months Ended
December 31,
1996 1995
(Unaudited)(Unaudited)
<S> <C> <C>
Cash flows from operating activities
Net (loss) $(1,126,540) $(685,021)
Adjustments to reconcile net loss to
net cash provided/used by
operating activities -
Depreciation and amortization 15,850 1,660
(Increase) decrease in valuation allowance 0 (173,228)
Issuance of stock for services
and interest 641,145 102,086
Change in assets and liabilities -
Contract receivables (12,785) (31,634)
Prepaid expenses (767) (2,693)
Accounts payable and accrued liabilities 145,807 45,645
Accrued payroll - officers (139,917) 0
Net cash (used in) operating activities (477,207) (743,185)
Cash flows from investing activities
Investments in patents 0 (1,595)
Sale of marketable equity securities 0 677,237
Net cash (used in) provided by investing
activities 0 675,642
Cash flows from financing activities
Proceeds from shareholder notes - net 71,120 (30,000)
Proceeds from sale of stock 304,691 302,020
Payments on capital lease obligations (40,431) 0
Proceeds from the sale of warrants 31,250 0
Net cash provided by financing
activities 366,630 272,020
Net increase (decrease) in cash and
cash equivalents (110,577) 204,477
Cash and cash equivalents at
beginning of period 118,612 3,801
Cash and cash equivalents at end of period $ 8,035 $208,278
Supplemental Cash Flow Information
Cash paid for interest $73,337 $93,936
</TABLE>
Supplemental disclosure of non-cash financing activities
The Company entered into capital leases for
equipment in the amount of $135,052
The Company declared accrued dividends of$5,085
for the Series "B" preferred stock.
See Notes to Consolidated Financial Statements
BION ENVIRONMENTAL TECHNOLOGIES, INC.
AND SUBSIDIARIES
Consolidated Statement of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
Series "B" Common
Preferred Stock Common Stock Stock
Shares Amount Shares Amount Subscribed
<S> <C> <C> <C> <C> <C>
Balances at June 30, 1996 18,834 $ 95,482 1,683,777 $3,485,270 $ 49,538
Common stock subscriptions
for services -- -- -- -- 20,935
Warrants issued for cash -- -- -- $31,250 --
Issuance of common stock
for cash -- -- 56,183 $151,216 --
Issuance of common stock
for services -- -- 7,846 $23,540 --
Dividends declared, preferred
stock Series B -- -- -- -- --
Net (loss) for the period ended
September 30, 1996 -- -- -- -- --
Balances at September 30, 1996 18,834 $ 95,482 1,747,806 $3,691,276 $ 70,473
Common stock subscriptions
for services and debt -- -- -- -- $259,685
Issuance of common stock for cash -- -- 41,287 $153,475 --
Issuance of common stock
for services -- -- 734 $2,200 --
Issuance of common stock
for reduction of debt -- -- 113,542 $334,785 --
Dividends declared, preferred
stock Series B -- -- -- -- --
Net (loss) for the period ended
December 31, 1996 -- -- -- -- --
Balances at December 31, 1996 18,834 $ 95,482 1,903,369 $4,181,736 $330,158
</TABLE>
Continued below
See Notes to Consolidated Financial Statements
BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statement of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
Accumulated
(Deficit) Total
<S> <C> <C>
Balances at June 30, 1996 $(5,903,824) $(2,273,534)
Common stock subscriptions
for services -- 20,935
Warrants issued for cash -- 31,250
Issuance of common stock
for cash -- 151,216
Issuance of common stock
for services -- 23,540
Dividends declared, preferred
stock Series B (2,544) (2,544)
Net (loss) for the period ended
September 30, 1996 (415,423) (415,423)
Balance at September 30, 1996 (6,321,791) (2,464,560)
Common stock subscriptions
for services and debt -- 259,685
Issuance of common stock
for cash -- 153,475
Issuance of common stock
for services -- 2,200
Issuance of common stock
for reduction of debt -- 334,785
Dividends declared, preferred
stock Series B (2,541) (2,541)
Net (loss) for the period
ended December 31, 1996 (706,032) (706,032)
Balances at December 31, 1996 $(7,030,364) $(2,422,988)
</TABLE>
See notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Summary of Accounting Policies
The summary of the registrant's significant accounting policies
are incorporated by reference to the Company's annual report on
Form 10-KSB at June 30, 1996.
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.
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. To date, the Company had been in the development stage
and its principal activities had consisted of raising capital,
performing research and development activities and the
development of their products. The Company has not yet begun
earning significant revenue from its planned principal
operations. Consequently, as of December 31, 1996, the Company
has incurred accumulated losses totaling approximately
$7,000,000, resulting in a accumulated stockholders' deficit of
approximately $2,500,000. Cash flows from current operations are
not sufficient to meet the obligations of the Company.
Management plans include continuing efforts to obtain additional
capital to fund operations until contract sales along with sales
of BionSoilO 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>
December 31, June 30,
1996 1996
<S> <C> <C>
Costs incurred on contracts $1,307,275 $1,023,774
Estimated (losses) (425,216) (201,321)
882,059 822,453
Less billings to date (744,323) (706,834)
$ 137,736 $ 115,619
</TABLE>
Note 4 - Stockholders' Deficit
The Company has various classes of warrants, please refer to the
Company's Form 10-KSB/A dated June 30, 1996 for details.
Note 5 - Offer to Warrant Holders
Effective December 1, 1996 through December 31, 1996, the Company
made an offer (the "Offer") to all holders of warrants to
purchase shares of the Company's restricted and legended common
stock at a price per share of $4.50, to exchange each of their
warrants for 1.5 Class E-1 Warrants to purchase shares of the
Company's restricted and legended common stock at a price per
share of $6.00 for a period commencing January 1, 2001 and
expiring December 31, 2001. The holders of warrants subject to
this offer are primarily officers, directors, members of the
Northrop family, Dublin Holding, Ltd.("DHL"), LoTayLingKyur, Inc.
("LTLK"), and principals of DHL and LTLK. All such warrant
holders accepted the Offer. (See Form 8-K dated December 1,
1996.)
Note 6 - Investment Banking Agreement
Effective December 1, 1996, the Company entered into an agreement
(the "Agreement") with Global Financial Group, Inc. ("GFG")
whereby Company has engaged GFG to provide investment banking
services from December 1, 1996 to November 30, 1998. Under the
Agreement GFG has agreed to provide Company with advice; to
consult with Company concerning business and financial planning,
corporate organization and structure, financial matters in
connection with the operation of the business of Company, private
and public equity and debt financing, acquisitions, mergers and
other similar business combinations, Company's relations with its
securities holders, preparation and distribution of periodic
reports, and shall periodically provide to Company an analysis of
its financial statements. Company will provide GFG with the
following compensation for the provision of these services: a
warrant to purchase 100,000 shares of Company's common stock at
$6.00 per share exercisable for a six months period commencing
June 1, 1998. Additionally, if, directly or indirectly through
the efforts of GFG, Company raises not less than $1,250,000, or
other amount satisfactory to Company by June 30, 1997, GFG shall
have earned a warrant to purchase 150,000 shares of Company's
common stock at $8.00 per share exercisable for a six months
period commencing June 1, 1999, and a warrant to purchase 200,000
shares of Company's common stock at $12.00 per share exercisable
for a six months period
commencing June 1, 2001 and expiring December 1, 2001. If at any
time prior to the exercise of these warrants Company undertakes
to register any shares of its common stock pursuant to a form of
registration statement which would allow registration of the
shares underlying the exercise of these warrants, then Company
shall include the underlying shares in such registration
statement at Company's sole cost; PROVIDED, HOWEVER, in the event
of a registration statement involving an underwriter, such
underwriter shall have the right, in its sole discretion, to
impose restrictions on the resale of Company's securities issued
pursuant hereto and/or eliminate this registration right from the
underwritten registration statement in its entirety.
Additionally, the agreement between GFG and Company effective
August 1, 1995 to July 31, 1996 (see Form 8-K dated August 1,
1995) contained warrants to purchase 50,000 shares of Company's
common stock at $2.00 per share for a period ending July 31, 1996
which warrants have expired, and warrants to purchase 50,000
shares of Company's common stock at $4.00 per share for a period
ending July 31, 1997 and warrants to purchase 100,000 shares of
Company's common stock at $6.00 per share for a period ending
July 31, 1998 which warrants have been cancelled. However, for
services provided to this date under the agreement, the Company
has issued to GFG warrants to purchase 25,000 shares of Company's
common stock at $6.00 per share for a six months period
commencing June 1, 1998, warrants to purchase 50,000 shares of
Company's common stock at $8.00 per share for a six months period
commencing June 1, 1999 and warrants to purchase 25,000 shares of
Company's common stock at a price of $10.00 per share for a
period commencing March 1, 2001 and ending October 1, 2003. (See
Form 8-K dated December 1, 1996.)
Note 7 - Subsequent Events
Effective January 2, 1997, the Company entered into an agreement
(the "Agreement") with LoTayLingKyur, Inc. ("LTLK") whereby LTLK
will convert the note between Company and LTLK in the amount of
$2,007,035 which is due on May 15, 2000 (see Form 10-KSB/A for
fiscal year ended June 30, 1996)(the "Note") in full on June 30,
1997 into 1,274,308 shares of the restricted and legended common
stock of the Company plus warrants to purchase 637,154 shares of
the common stock of the Company at a price per share of $6.00
exercisable for a period from January 1, 2001 through December
31, 2001, provided that:
(i) all interest payments are made timely from January
through June 1997
(ii) all consulting payments (to continue past June 30, 1997)
are made timely through June 30, 1997
(iii) the Company has not less than 36,000 Bion Animals under
contract as of June 30, 1997
(iv) the Company has raised not less than $1,250,000 cash
equity (net of offering costs) from January 1, 1997 to
June 30, 1997.
Upon conversion, all other covenants and conditions not directly
related to the Note and its security interest would continue
through the term of the earlier agreement. LTLK could elect to
convert, in its sole discretion, even if all conditions have not
been met. (See Form 8-K dated January 2, 1997.)
Effective January 8, 1997 the Company (along with its wholly-
owned subsidiary BionSoil, Inc., "BSI") entered into a financing
agreement (the "Agreement") with LoTayLingKyur, Inc. ("LTLK")
whereby LTLK advanced the sum of $73,870 to Company on the
following terms and conditions: as security, LTLK took title to
7,387 cubic yards of raw unscreened BionSoil, BSI shall have the
right to acquire the collateral, BionSoil, in whole or in part by
payment to LTLK the sum of $11.50 per cubic yard through June 30,
1997, thereafter the price shall increase by $.20 per cubic yard
per month, BSI shall repurchase all of the collateral BionSoil
not previously repurchased at a price of $12.70 per cubic yard by
December 31, 1997. (See Form 8-K dated January 2, 1997.)
On January 16, 1997 the Company and Duane Kennedy signed a
Memorandum of Understanding whereby the Company has employed Mr.
Kennedy in the position of President, Bion Technologies, Inc. and
BionSoil, Inc. Mr. Kennedy has spent the last five years as Vice
President of Sales and Marketing at Pursell Industries, Inc., a
privately held company located in Birmingham, Alabama. Prior to
his employment at Pursell, Mr. Kennedy worked for twenty five
years in marketing and sales positions of increasing
responsibility for Armstrong World Industries, Olympic Stain, and
PPG Industries. Mr. Kennedy received a B.S. degree in Education
from the University of Arkansas, Fayetteville, in 1966. (See
Form 8-K dated January 2, 1997.)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION
The Company is a service provider to customers with wastewater
treatment requirements and is engaged in the business of
designing, marketing, and monitoring the installation and
operation of proprietary systems for the biological treatment of
wastewater produced from agricultural, food processing, and
similar sources.
The Company currently has systems treating swine, dairy, juice
processing, and sugar plantation waste streams in Florida, New
York, North Carolina, and Washington. The Company is in the
process of designing or monitoring the installation of seven
projects, 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 December 31, 1996 was .44 : 1
as compared to .63 : 1 as of June 30, 1996. Cash as of December
31, 1996 decreased to $8,035 as compared to $118,612 as of June
30, 1996.
The Company has entered into capital leases for BionSoil
processing equipment in the amount of $135,052 during the 6 month
period ended December 31,1996.
During the six months ended December 31, 1996 the Company sold
57,470 shares of restricted and legended stock for net cash of
$154,691, received the proceeds, from the exercise of options to
purchase 40,000 shares of its common stock, of $150,000, issued
6,435 shares of restricted and legended stock valued at $12,870
as payment of a note (principal and interest), and issued 7,846
shares of restricted and legended common stock valued at $23,540
to a shareholder in exchange for rent.
Effective December 1, 1996 the Company converted a note in the
amount of $319,527 into units (the "Units") consisting of one
share of the Company's common stock plus one class K Warrant (the
"Warrants")(each Warrant authorizing the holder to purchase one
share of Company's restricted and legended common stock for a
price of $4.50 per share for a period commencing January 1, 2001
and expiring December 31, 2001, which warrants were subsequently
converted to Class E-1 Warrants pursuant to the offer described
in the Form 8-K dated December 1, 1996.
Effective December 1, 1996 Jon Northrop, Company's CEO, Jere
Northrop, Company's President and COO, and M. Duane Stutzman,
Company's Treasurer and CFO signed Investor Representation and
Subscription Agreements ("Agreements") to purchase 33,334,
33,334, and 13,334 shares of the restricted and legended common
stock of the Company plus 50,000, 50,000, and 20,000 E-1 Warrants
to purchase additional shares of the Company's common stock at a
per share price of $6.00 for a price of $100,000, $100,000 and
$40,000 respectively. Further, each of the officers have
notified the Company that payment for the subscribed stock would
be made by cancellation of salary amounts owed to the officers by
the Company in the amounts of $100,000, $100,000, and $40,000
respectively, such cancellation and payment to occur upon
issuance of the restricted and legended common stock. (See Form
8-K dated December 1, 1996.)
On October 26, 1996, the Company secured a $500,000 line-of-
credit from a shareholder, interest at 12% per annum payable
monthly, with all outstanding principal and interest due on
December 31, 1999. (See Form 8-K dated December 1, 1996)
On August 20, 1996, the Company issued warrants to purchase
14,500 shares of common stock at a price of $3.00 per share and
10,000 shares of common stock at a price of $5.00 per share for
$30,000. The warrants are effective beginning August 21, 1996 for
a 60 month period ending August 21, 2001.
On August 30, 1996, the Company issued warrants to employees
under the Fiscal Year 1994 Incentive Compensation Plan, to
purchase 60,000 shares of common stock at $5.00 per share. The
warrants are effective for a 60 month period beginning September
1, 1996 through September 1, 2001. On September 25, 1996, the
Company issued warrants to an employee under the Fiscal Year 1994
Incentive Compensation Plan, to purchase 50,000 shares of common
stock at $3.75 per share and 50,000 shares of common stock at
$5.25 per share. the warrants are effective for the periods
September 25, 1996 through January 1, 1996 and September 25, 1996
through April 1, 1997, respectively. On December 31, 1996 the
Company issued additional warrants under the plan to purchase
50,000 shares of common stock at $6.25 per share. The warrants
are effective for the period December 31, 1996 through May 30,
1997.
The Company has incurred losses since inception approximating
$7,000,000 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.
The Company is currently negotiating with independent third
parties to obtain the necessary additional funding for the
Company. No assumption can be made that the Company will be able
to successfully attain profitable operations and/or raise
sufficient capital to sustain operations.
Results of Operations
Comparison of the Six Months Ended December 31, 1996 with
Six Months Ended December 31, 1995
Revenue in the six months ended December 31, 1996 was $61,807
compared to $84,988 for the corresponding six month period in
1995, a decrease of $23,181. Contract costs were higher ($225,000)
in the 1996 six month period due to startup expenses for BionSoil
processing sites in New York and Florida. Included in the
processing sites startup expenses are facilities (rent, utilities,
maintenance, etc.), equipment, and additional personnel.
General and administrative expenses were higher ($50,161) due to
increased compensation.
The Company recorded $105,000 in interest income from the sale of
Delta stock associated with the Settlement Agreement and General
Release on the UFG note. This is 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
$141,334 in interest expense on its notes to shareholders and
capital equipment leases, and $66,887 in research and development
costs. As a result of the above, the Company recorded a net loss
of $1,121,455 in the six month period ended December 31, 1996,
compared to a net loss of $685,021 for the six month period ended
December 31, 1995.
Comparison of the Three Months Ended December 31, 1996 with
Three Months Ended December 31, 1995
Revenue in the three months ended December 31, 1996 was $26,260
compared to $46,803 for the corresponding three month period in
1995, a decrease of $20,543. Contract costs were higher by
$135,390 in the three month period. Startup expenses for BionSoil
processing sites in New York and Florida accounted for $112,000
of the increase. The above resulted in a gross loss for the
period ended December 31, 1996 of $147,260 as compared to a gross
profit of $8,673 for the same three month period in 1995.
Included in the higher contract costs startup expenses for the
BionSoil processing sites in New York and Florida are facilities
(rent, utilities, maintenance, etc.), equipment, and additional
personnel.
General and administrative expenses were higher ($21,955) in the
period due to increased compensation.
The Company recorded $73,399 in interest expense on its notes to
shareholders and capital equipment leases and $32,336 in research
and development costs. As a result of the above, the Company
recorded a net loss of $706,032 compared to a net loss of
$538,725 for the three months ended December 31, 1995.
General Discussion of Current and Proposed Operations
As shown in the financials in this Form 10-QSB, over $4,607,000
has been invested in the Registrant through the close of the
fiscal quarter ended December 31, 1996. These financial
statements also show that on December 31, 1996 the Company had a
negative net worth of $2,422,988, cumulative losses of
$7,030,364, limited current revenues and substantial current
operating losses. However, 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.
The following section of this 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 plans for growth in
the future.
Business Development
The Company's mission is to provide services, systems and
products which solve environmental problems and recycle wastes
into high value horticultural products which produce superior
plant performance. Based on this, the Company's business is
focused on the application of its patented proprietary technology
in two complementary business areas; first, BionSoil NMSO
systems: the design, sales, installation oversight, operations
management, and material harvesting of BionSoil NMS systems for
large animal raising agricultural facilities; and, second,
BionSoilO: the processing, blending, packaging, distribution,
marketing and sales of BionSoil and BionSoil-based products which
use the material harvested from the BionSoil NMS systems.
From prior to September 20, 1989, (when Bion Technologies, Inc.,
one of the subsidiaries of the Company was incorporated) through
at least March 31, 1995, the Company was in the technology
development mode with limited sales of primarily first-of-a-kind
wastewater and/or BionSoil NMS systems.
As of December 31, 1996, the Company has, in the aggregate, sold,
installed, or had under construction systems in four distinct
regions: New York, Florida, North Carolina, and the Pacific
Northwest. The sales in these regions establish multiple
applications for the Company's technology including:
(a) Three dairy farm wastewater treatment and nutrient
reduction: systems which treat the wastewater discharges from
dairy farms to remove phosphorus, nitrogen and other nutrients
and create water suitable for discharge or reuse.
* Florida
* New York
* Washington
(b) Seventeen dairy farm BionSoil NMS: systems which solve the
environmental problems associated with dairy farms and also
create BionSoil.
* New York and the northeast, including Maryland
* North Carolina
* Florida
* Washington and the Northwest, including Oregon
(c) One feedlot BionSoil NMS: a system which solves the
environmental problems associated with feedlots and also
creates BionSoil.
* New York
(d) Three hog farm BionSoil NMS: systems which solve the
environmental problems associated with hog farms and also
create BionSoil:
* North Carolina
(e) One combination food processing waste and manure waste
treatment system: a system which treats nutrients and solid
wastes from food processing plants and animal confinement
areas.
* New York
(f) Three fruit processing wastewater treatment: systems which
treat the wastewater discharges from fruit processing plants
to remove solids, nutrients and other contaminants to create
water suitable for discharge or reuse:
* Florida, citrus juice plants
* New York, cherry processing plant
(g) Three storm water run-off, surface water run-off
treatment: systems which treat storm water run off from
agricultural installations to remove nutrients and other
contaminants to create water suitable for discharge or reuse:
* Florida, run-off from dairy farm pastures, industrial
installations and sugar cane plantations
Geographic Expansion
In designing, permitting, installing and operating these systems,
the Company has 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, is not less than $500,000 per region, and
may exceed $1,000,000. Based on experience to date in the four
regions where system sales and installation activity is ongoing,
the Company estimates that approximately $3 million has been
expensed related to these matters which has created what might be
called "good will", "marketing" and "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 BionSoil 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 contract (for a hog system) was signed in December
1994. The 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 is expanding
its marketing and sales efforts in North Carolina. Currently,
the Company has submitted proposals to a number of potential
customers, is engaged in discussions with several of these, and
has signed contracts for three additional system installations.
Management estimates that, to date, in excess of $400,000 has
been devoted to the effort to support this first hog system in
North Carolina and, therefore, to support the marketing of
additional systems. Current projections are that it will require
an additional twelve to eighteen months before sufficient cash
flow will be generated from system and BionSoil sales in North
Carolina to offset ongoing expenses.
The Company anticipates continuing its expansion into new areas
in the future, and this expansion will require similar additional
capital resources which, when expended will also be expensed and
not shown as balance sheet assets.
Technology Expansion
The Company has four issued U.S. Patents: a Bioconversion Reactor
and System, an Animal Waste Bioconversion System, a Bioconverted
Nutrient Rich Humus, and a Phosphorous Treatment Process. The
Company also has an issued Canadian Patent for an Aqueous Stream
Treatment Process, and has received formal Notice of Allowance
from the U.S. Patent Office for its Storm Water Remediatory
Bioconversion System application. These patents provide broad
coverage of the fundamental technology that underlies the
Company's systems and processes. 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 $4.0 million) was actually expended on research and the
development of the technology and construction of prototype
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 substantial 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 BionSoil
NMS systems: 1) initial fees for system design, permitting,
startup 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 contract is signed), an on-going revenue stream
to the Company from the sale of BionSoil and BionSoil-based
products produced from the systems.
BionSoil Economics
The Company analyzes BionSoil production on the basis of a
Company defined standard unit (a "BionAnimal"), where one
BionAnimal is defined as a manure producing unit (made up of one
or more animals) which produce wastes (that can be captured in a
BionSoil NMS system) equivalent to those produced by one 1,400
pound dairy cow living in a total confinement facility. When all
the manure and urine produced by one BionAnimal is collected and
converted into BionSoil, it 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 equal one BionAnimal.
As of January 31, 1997 the Company has eleven systems containing
5,530 BionAnimals that are on line and producing BionSoil. Three
of these systems (representing 1,200 BionAnimals) were added as
the result of system start-ups in the last 60 days. Further, the
Company has ten additional systems containing 5,650 BionAnimals
under contract but not yet in production. These systems are in
various stages from preliminary design through construction. Of
these, two systems (representing 1,250 BionAnimals) are covered
by contracts signed within the last 60 days. As a result, the
Company has twenty one systems containing 11,180 total
BionAnimals in production or under contract as of February 1,
1997. The Company estimates that these BionAnimals should
produce approximately 110,000 cubic yards of BionSoil per year
when all of the systems are on line, which is currently expected
to occur within the next eight months.
As systems are brought on line and BionSoil is harvested,
BionSoil, Inc. (the Company's other wholly-owned subsidiary) will
purchase (for cash) the harvested BionSoil from Bion
Technologies, Inc to process it into final products for sale to
customers. Subsequently, each farm is paid a percentage of the
wholesale price that Bion Technologies, Inc. has received for the
BionSoil. These payments are expected to represent an important
part of the strategy developed by the Company for the successful
marketing of BionSoil 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
BionSoil NMS on a farm site, many of these costs can be
substantially reduced, and the farm should receive a revenue
stream from the cash payments made by the Company to the farm.
While sales of BionSoil NMS systems have been sporadic over the
last four years, and significant quantities of BionSoil
(resulting in significant payments to the farms) have only
recently been available, the Company has clearly demonstrated the
technology with eleven systems in successful operation, three of
which have been on line for more than two years. Additionally,
through both Company performed and independent tests, 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 planning targets for system sales
and installations have been established. These targets which, if
actually achieved would result in a major expansion of the
Company, are based on historical sales during the past few
months, the large number of proposals and preliminary contracts
currently being prepared, and the apparent steadily increasing
interest in BionSoil NMS systems in the large animal agriculture
area. Management's sales plans at present project a level of 45
systems containing 30,000 BionAnimals under contract by June 30,
1997, the end of the current fiscal year. If these targets are
met and the systems are brought into production as anticipated,
BionSoil in the approximate amount of 300,000 cubic yards should
be available for harvest and preparation for sale.
Initial BionSoil harvests have been made from installations in
Florida, New York, North Carolina and Washington. During 1996
approximately 11,200 cubic yards have been harvested. Of that
amount, 2,000 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. Additionally, processed and
bagged BionSoil has been sold to nursery growers and organic
growers in Florida (in 75 pound bags) for the equivalent of
$80.00 per cubic yard. As of January 31, 1997, the average
selling price during the prior 12 months for bulk, unprocessed
BionSoil was $11.64 per cubic yard, and for processed and bagged
BionSoil was $58.45 per cubic yard. Note 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.
Market Size
The sales goal outlined above 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.
In the area of system sales, 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. The Company has analyzed the economics of system
installation and operation as it relates to the size of farms,
and based on this analysis has established a potential target
universe of 28 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 1997 system sales
(and the associated BionAnimals) would represent a 0.1% market
penetration in fiscal 1997.
The potential market for BionSoil and the various products that
the Company will blend using BionSoil has been described and
quantified in a study by Batelle ("Compost: United States Supply
and Demand Potential" in Biomass and Bioenergy Vol. 3, Nos 3-4,
pp. 281-299, 1992). In that analysis, Batelle shows 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 in excess
of one billion cubic yards per year. On the basis of this total
potential market, the BionSoil that the Company anticipates will
be produced from the 30,000 BionAnimals if the Company reaches
its fiscal year 1997 sales target would result in a 0.03% market
penetration.
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 calculated 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>
<CAPTION>
Table 1
BionSoil selling Annual gross margin
price per cubic Bion per cubic per Bion
yard Expenses yard Animal
<S> <C> <C> <C> <C>
$ 10.00 $ 8.00 $ 2.00 $ 20.00
20.00 13.00 7.00 70.00
40.00 28.00 12.00 120.00
60.00 37.00 23.00 230.00
80.00 40.00 40.00 400.00
100.00 43.00 57.00 570.00
</TABLE>
Income from BionSoil sales is anticipated to begin in an average
of one and a half to two years after the signing of a contract
for a BionSoil NMS system. These gross margins would be expected
to be repeated each year 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,
and is successful in realizing a target average sales price of
$40 per cubic yard (starting in fiscal year 1998), each
BionAnimal would contribute $400 of revenue per year to the
Company, resulting in gross margins of $120 per year. Under the
terms of most BionSoil NMS contracts this contribution to revenue
and gross margin is anticipated to continue for at least a 15-
year period. If the net present value (discounted at 10%) of
this gross margin cash flow is calculated for this 15-year
period, it shows that each BionAnimal is anticipated to have
approximately $950 net present value to the Company.
Based on experience to date, the Company expects that contract
fees, 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. Therefore, once a sufficient number
of systems are under contract and the BionSoil production is on
line, the Company is expected to achieve financial break-even.
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 plans
is apparent if the Company is successful in achieving its
targets.
As the above discussion 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. As stated previously, 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. Moreover, 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. 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 at its current level, the Company's
continued existence is uncertain.
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. None
ITEM 3. Defaults Upon Senior Securities. None
ITEM 4. Submission of Matters to a Vote of Security Holders.
None
ITEM 5. Other Information. None
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits - none
(b) Reports on Form 8-K:
Form 8K (dated August 30, 1996) reporting on items 5 & 7.
Form 8K (dated December 1, 1996) reporting on items 5 & 7.
Form 8K (dated January 2, 1997) reporting on items 5 & 7.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant 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: February 18, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
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<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996
<PERIOD-END> JUN-30-1996 JUN-30-1996
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<SECURITIES> 0 0
<RECEIVABLES> 12,738 12,738
<ALLOWANCES> 0 0
<INVENTORY> 241,803 241,803
<CURRENT-ASSETS> 262,576 262,576
<PP&E> 207,608 207,608
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 599,306 599,306
<CURRENT-LIABILITIES> 592,335 592,335
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0 0
95,482 95,482
<COMMON> 4,181,736 4,181,736
<OTHER-SE> (6,700,206) (6,700,206)
<TOTAL-LIABILITY-AND-EQUITY> 599,306 599,306
<SALES> 26,260 61,807
<TOTAL-REVENUES> 28,324 169,001
<CGS> 173,520 285,702
<TOTAL-COSTS> 173,520 285,702
<OTHER-EXPENSES> 487,437 863,420
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 73,399 141,334
<INCOME-PRETAX> (706,032) (1,121,455)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (706,032) (1,121,455)
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