SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [Fee Required] FOR THE FISCAL YEAR ENDED June 30, 1997
---------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [No Fee Required] OR THE TRANSITION PERIOD FROM
__________ TO __________
COMMISSION FILE NUMBER 0-19333
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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 St., Suite 3310
Denver, Colorado 80202
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(ADDRESS OF PRINCIPAL
EXECUTIVE OFFICES)
(303) 294-0750
------------------------------------
(Registrant's telephone number, including area code)
Securities registered under Section 12(b) and/or 12(g) of the Exchange Act:
Common Stock, no par value
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No___
---
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-K contained in this form, and no disclosure will be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this form 10-KSB. [ X ]
The aggregate market value as of September 25, 1997 of voting stock held by
non-affiliates of the Registrant was $7,056,723 based upon the average of the
closing bid and asked prices on the Over the Counter Electronic Bulletin Board
exchange as of that date.
As of September 25, 1997, 3,832,422 shares of Registrant's Common Stock, no
par value, and 18,834 shares Series B Convertible Preferred Stock were issued
and outstanding.
<PAGE>
PART I
------
ITEM 1. DESCRIPTION OF BUSINESS
THIS ANNUAL REPORT ON FORM 10-KSB CONTAINS FORWARD-LOOKING STATEMENTS
(IDENTIFIED WITH AN ASTERISK "*" AT THE END OF EACH SUCH STATEMENT) THAT
INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A
RESULT OF CERTAIN FACTORS, INCLUDING THOSE SET FORTH IN THIS BUSINESS SECTION
AND UNDER "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS" BELOW.
Business Development
---------------------
Bion Environmental Technologies, Inc. (the "Registrant") is a Colorado
corporation organized on December 31, 1987. The Registrant maintains its
principal executive offices at Suite 3310, 555 Seventeenth Street, Denver,
Colorado 80202 and its phone number is (303) 294-0750.
Substantially all of the business and operations of the Registrant are
conducted through two wholly owned subsidiaries, Bion Technologies, Inc. (a
Colorado corporation organized September 20, 1989) and BionSoil, Inc. (a
Colorado corporation organized June 3, 1996). The Registrant and its
subsidiaries are hereafter referred to as the "Company".
The Company has offices located in Colorado, Florida, New York, and North
Carolina.
Business of the Company
- - - --------------------------
General Description
--------------------
The Company currently conducts its business in two complimentary areas:
first, the Company designs, markets and installs waste, wastewater, and storm
water treatment systems, primarily in the agricultural and food processing
area; and second, markets BionSoil' products such as organic fertilizers,
potting soil, and soil amendments which are produced from the nutrient rich
biosolids harvested from certain types of the Company's agricultural systems
installed on large dairy and hog farms.
Principal Products and Services
----------------------------------
In the waste, wastewater, and stormwater treatment system area, the
Company designs, markets, monitors the construction and installation of, and
assists its customers in the operation of systems for the biological treatment
of organic waste, wastewater, and stormwater. The Company's systems reduce
pollutant levels in waters discharged from agricultural and food processing
operations in order to enable customers to satisfy environmental regulatory
requirements and to avoid fines, penalties, or citizen lawsuits. Currently the
Company has systems designed for and operating in the dairy and hog farming
and fruit processing industries. The Company is designing systems to treat
agricultural waste streams (feedlots, beef, poultry, fruit and vegetable
farms), food processing plants, and high-intensity and non-point source waste
and wastewater discharges. The Company*s animal waste treatment systems
convert animal waste into nutrient rich organic biosolids which the Company
processes and sells as BionSoil' and BionSoil products either in bulk or
bagged form. The Company holds patents that generally cover the systems'
processes and the soil products produced by those processes.
The Company's systems solve or mitigate a broad range of environmental
problems by combining advanced technology with biological and chemical
processing, engineering, and management principles. The Company studies each
proposed site of application carefully to determine the best system design to
solve the client's existing problems, oversees system construction and
start-up, and then works to promote the conditions under which system
performance can be optimized. The result is an enhanced natural system
generally consisting of a bioreactor (with aerobic, facultative, and anaerobic
bacterial populations for initial waste breakdown), an ecoreactor (a managed
high intensity wetland-like area), and, in some applications, a georeactor (a
treatment zone of porous material underlying the bioreactor and ecoreactor).
Such a system removes odors, nutrients such as nitrogen and phosphorus, and
other materials from wastes and wastewaters. The materials are then
bioconverted into some or all (depending on the specific application) of the
following end products: biosolids used to produce BionSoil and BionSoil
products, a high protein feed crop, clean water, and wetlands habitats.
Since its inception through June 30, 1997, the Company has sold,
installed, or had under construction, 30 systems in the aggregate (five of
which are no longer in service). These systems demonstrate multiple
applications for the Company's technology including conversion of hog and
dairy cow waste into BionSoil (while removing nutrients and reducing odor),
treating wastewater from dairy farms, food and fruit processing plants, and
storm and surface water run-off from dairy farms, industrial installations,
and sugar cane plantations.
Marketing and Distribution
----------------------------
Systems
-------
The Company's marketing efforts for system sales and installations
generally have been directed at solving environmental problems (ground and
surface water contamination, and odor) faced by the agricultural and food
processing industries. While system sales have continued to result from
enforcement actions and pressures from environmental regulatory agencies at
the federal, state, and local levels, satisfied customers and positive media
coverage have also resulted in system sales and the generation of more leads.
The Company's marketing strategy has generally involved a two stage
process. First, a particular technology application is developed and initial
sales are made in the selected market segment within a single geographic area.
Based on performance of the initial systems, the specific market segment is
developed in the geographic area through the sales of additional systems.
Simultaneously, other potential customers with similar problems in the area
are identified, and new applications of the technology are developed and
marketed to them based on the Company's demonstrated track record in solving
similar problems in the initial market segment. Second, as the success of
each particular application is demonstrated in an initial market, marketing
commences in other geographic regions. Following this basic approach, the
Company is currently developing and/or marketing systems in Florida, New York,
Colorado, and North Carolina.
In addition, during the past year the Company has received initial
marketing contacts for licensing or joint ventures to utilize the Company*s
technologies for applications in Pacific Rim countries, Eastern Europe, and
Canada. The Company also plans over the coming year to increase its marketing
efforts in the areas of industrial and municipal wastewater treatment and
stormwater remediation.
The Company has marketed and sold its animal waste treatment systems
primarily to large high intensity hog raising facilities and dairy farms. The
Company continues to design, permit, build, and operate systems that meet the
objectives of its customers for waste and wastewater treatment, reduce odor,
and satisfy environmental regulators.
BionSoil
--------
The Company*s Bion NMS system converts animal waste into nutrient rich
biosolids which can be processed and sold in bulk and in bags as BionSoil and
BionSoil products. The biosolids are blended to produce organic potting soil,
fertilizer, and soil amendments. The Company has not yet established sales
distribution systems for BionSoil products and sales to date have been only
sporadic. Delays have also resulted from the need for additional research on
blending BionSoil products and from limited working capital to purchase
equipment. To date there have been limited sales of bulk product to nurseries,
growers, and distributors, and of bagged product to retail outlets in New
York. Bagged product is expected to be on the market in New York and Florida
for the spring 1998 season *.
Competition
-----------
The Company believes that its systems offer technical and environmental
advantages, are frequently more affordable than competitive technologies, and
produce superior treatment results in appropriate situations. However,
competition in the biological wastewater treatment industry is intense. The
Company faces significant competition from many firms involved in the design,
construction, and operation of conventional wastewater treatment systems, as
well as developers of constructed wetlands which are similar but not identical
to the Company's technology. Additionally, there are companies that are
capable of developing systems similar to those being developed by the Company
and that have developed and are capable of developing systems based on other
technologies that are or may be competitive with the Company's systems. Many
of these companies are well-established, have substantially greater financial
and other resources than the Company and have established success in the
development, sale and service of their systems. These companies may succeed
in developing competing systems that are more effective than those developed
by the Company. The Company's ability to compete will be dependent upon its
ability to obtain required approvals and licenses from regulatory authorities
and upon the Company's ability to introduce its systems in the appropriate
markets. The Company believes, however, that in the market segments on which
it has focused to date, its systems offer a less expensive and more flexible
process with better economic and remedial performance than conventional
systems offered by competitors.
There is also extensive competition in the potting soil, organic soil
amendment, and organic fertilizer markets. There are many companies which are
already selling similar type products. These companies have established
marketing and sales organizations and retail customer commitments, are
supporting their products with advertising, sometimes on a national basis, and
have developed brand name recognition and customer loyalty in many cases.
Gaining a share of this market may take time and could require substantial
resource allocation for advertising, packaging, and product introductions.
Further competition will come from a variety of composting operations being
run by municipal and other governmental agencies, and by private industry, to
dispose of various waste products including industrial and municipal
wastewater sludges, yard and landscaping wastes, and other industrial or
commercial organic wastes. These composted materials may be sold by the
various organizations at low cost just to reduce or defray disposal expense,
thereby creating downward pressure on the price the Company may be able to
charge for its products. Many of the competing organizations and companies
are well-established, have substantially greater financial and other resources
than the Company and have already established success in the development and
sale of their products. The Company believes it can compete successfully with
these organizations in its market niche because BionSoil is generally a higher
quality product which qualifies as an all-organic material *. In addition,
initial university growth studies indicate that BionSoil has the potential of
replacing all of the amendments used in standard growers' mixes *. It will,
however, take further product development and marketing to realize the market
potential that BionSoil currently appears to offer *.
Dependence on One or a Few Major Customers
-------------------------------------------------
The Company's operating results are not dependent upon a limited number
of large contracts. Although some of the Company-'s customers accounted for
more than 10 percent of the Company's revenues during the past fiscal year
resulting from the installation of new systems, no such customer is expected
to account for more than 10 percent of the Company's revenues during the
current fiscal year. The nature of the Company's business is such that
significant sales are generally expected to be "one-time" contracts pursuant
to which single systems are sold and installed, with income to be received
after the first year of operation from the sale of by-products produced by the
systems and from maintenance contracts.
Patents
-------
The Company is the sole owner of five United States patents and one
Canadian patent:
U.S. Patent No. 5,078,882, Bioconversion Reactor and System. The patent
describes the Meta System Reactor (MSR) which is the underlying technology for
the Company's current wastewater treatment and Bion NMS systems. This patent
describes in detail the MSR containing three primary treatment zones,
bioreactor, ecoreactor and georeactor, which are cyclically connected by a
series of recycle flows and organism movements to bioconvert the contained
materials. The MSR, with modification, is the basis of the Company's NMS and
Bion NMS systems which have been developed for managing nutrient rich waste
streams from dairies, farms and food processing facilities.
U.S. Patent No. 5,472,472, Animal Waste Bioconversion System. The patent
describes a process for the bioconversion of animal wastes produced at a
Confined Animal Feeding Operation into economically desirable or ecologically
neutral materials. There are two essential aspects of the process. One
involves treatment of the solids fraction of the waste stream, resulting in a
variety of soil-like materials ranging from a high nutrient, organic soil to a
peat-like substance. The other aspect of the process entails treatment of the
waste stream liquids by means of a microbial activation zone and a constructed
wetland zone. The end-products are clean, virtually nutrient-free water, a
high humus soil, and an attractive wetland environment. This patent covers
the technology for the Bion NMS.
U.S. Patent No. 5,538,529, Bioconverted Nutrient Rich Humus. The patent
describes the process which is an improved process to create nutrient rich
humus through the biological transformation of animal wastes into ecologically
manageable materials. This patent describes the process of creating BionSoil
and its characteristics. Prior to the issuance of this patent a
continuation-in-part was filed describing additional attributes of BionSoil
and how it can be mixed with other substances to create additional useful
products.
U. S. Patent No. 4,721,569, Phosphorus Treatment Process. The patent
describes a process developed to substantially reduce the phosphorus content
of an aqueous influent stream containing biodegradable substrates. This
process, in essence, reduces the capital expenditures required to reduce
phosphorus levels in either air or oxygen-based wastewater treatment plants,
as compared to more conventional biological phosphorus removal or chemical
precipitation systems. The process also allows further savings to be realized
in operations due to the elimination or significant reduction of the chemical
loading required by conventional systems to accomplish the same removal rate.
U.S. Patent No. 5,626,644 Storm Water Remediatory Bioconversion System.
The patent describes a process for the treatment of agricultural, municipal,
or residential stormwater runoff or the like through the capture and
bioconversion of nutrients and contaminants in a constructed wetland treatment
zone entailing the addition of non-toxic chemical additives and the
establishment of chemical-microbial-vegetative complexes.
Canadian Patent No. 1,336,623, Aqueous Stream Treatment Process. This
patent extends Canadian patent protection to a combination of the features
included in U.S. Patents No. 4,721,569 and 5,078,882.
Management intends to file such additional patent applications in the
future as it may deem necessary or appropriate to protect any future
development of the Company's existing technology.
However, there can be no assurances: that any additional patents will be
granted to the Company, that the patents will be defendable against
competitors' potential infringement actions, if any, and/or that the patents
will provide any substantial protection of the Company's technology.
Research and Development
--------------------------
The Company maintains an active research program and continues working on
the generation of potentially marketable and patentable applications of the
Company's waste and wastewater treatment technology. Current research and
development efforts are focused on enhancements of the Bion NMS and derivative
technologies as utilized in the Company's existing systems in order to apply
these technologies to opportunities that exist in additional geographic areas
and industry segments. As each new geographic market and industry application
area is entered, there will be a need for additional research efforts to adapt
the Company's systems.
Further, the Company is developing a research effort focused on BionSoil
and BionSoil products. During the past year the Company, in conjunction with
Washington State University has studied the benefits of using BionSoil as a
fertilizer in apple orchards in Washington. Additionally, over the past year
a cooperative research relationship has been established with North Carolina
Cooperative Extension, North Carolina State University and North Carolina
Department of Agriculture in an effort to evaluate the benefits realized from
potential uses of BionSoil in both horticultural and animal nutrition and its
relative economic value. Follow-up studies are ongoing in this effort.
Environmental Protection/Regulation
------------------------------------
The Company is a provider of systems and services which result in
reduction of pollution and as such is not itself under direct enforcement or
regulatory pressure. However, because the Company is involved in wastewater
treatment, it is subject to environmental regulations with at least three
different focuses. Specifically:
(1) The marketing and sales success of the Company depends, to a
substantial degree, on the pollution clean-up requirements of various
governmental agencies from the Environmental Protection Agency (EPA) at the
federal level to various state departments of environmental affairs to local
governmental agencies at the county and city levels. As guidelines or
directives are established at the highest of these levels, lower jurisdictions
generally are required to at least meet or, in many instances, exceed the
standards established. Without these governmentally-induced pressures to
solve pollution problems, many municipalities, industries and individuals will
not expend the capital necessary to purchase systems to treat their wastewater
streams. While the current administration in Washington, D.C. has verbally
placed emphasis on pollution clean-up targets, there can be no assurance that
these statements will lead to actions which will result in regulations and/or
enforcement activity that will increase demand for the Company's systems.
(2) Federal, state and local environmental agencies frequently change
required final effluent standards for treatment systems which introduces a
degree of uncertainty in system design and performance criteria. As these
requirements change, the marketability of the Company's systems may be
impacted both negatively and positively.
(3) Additionally, most of the Company's systems require governmental
permits or approval prior to installation as they are treating situations for
customers where government regulations specify permit requirements for
operation.
Employees
---------
The Company employed twenty persons with eighteen persons full-time as of
June 30, 1997. Four of these full-time persons are engaged in management;
twelve in operations, sales and marketing; and two in clerical and
administration.
ITEM 2. DESCRIPTION OF PROPERTY
Office and Processing Facilities
- - - -----------------------------------
The Company's executive offices are located at 555 17th Street, Suite
3310, Denver, Colorado. The Company subleases four offices (plus use of
common facilities, office equipment and certain services) from Delta Petroleum
Corporation (which owns approximately 4% of the Company's currently issued and
outstanding common stock) on a month-to-month basis pursuant to an oral
arrangement between the parties. The Company has additional offices at 606 N.
French Road, Suite 6, W. Amherst, New York; 206 North Parrott Avenue,
Okeechobee, Florida; and 619-C South Third Street, Smithfield, North Carolina.
The Company also rents BionSoil processing sites located at State Road 710 and
SE 74th Trail, Okeechobee, Florida; 5116 Hermitage Road, Gainesville, New
York; 5905 Curriers Road, Arcade, New York; Upper Reservation Road, Castile,
New York; and 542 Garrett Road, Four Oaks, North Carolina. All leases and
rental agreements are with non-affiliated parties.
ITEM 3. LEGAL PROCEEDINGS
The Company knows of no material pending legal proceedings to which the
Company (or its Subsidiaries) is a party or of which any of its systems is the
subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There has been no submission of matters to a vote of security holders
during the fourth quater of the fiscal year ended June 30, 1997.
PART II
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ITEM 5.. MARKET FOR BION ENVIRONMENTAL TECHNOLOGIES, INC. COMMON STOCK AND
RELATED STOCKHOLDER MATTERS
(a) Market Information
------------------
The Company has had during the past two years only sporadic trading in
its common stock in the over-the-counter market, and there is no assurance
that such trading will expand or even continue. The Company's stock may not
be traded in certain states unless the Company is able to qualify its stock in
such states. During the past year there have been quotations for various
transactions in the Company's shares which are not necessarily representative
of an established public trading market.
At present, the Company's Common Stock trades under the symbol "BION"
(changed from "BIET" effective September 15, 1997) on the NASDAQ OTC Bulletin
Board. The following quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commission and may not represent actual transactions.
<TABLE>
<CAPTION>
Quarter Ended High Bid Low Bid
- - - ------------- ---------- --------
<S> <C> <C>
March 31, 1995 $ 7.75 $ 1.00
June 30, 1995 $ 7.75 $ 1.00
September 30, 1995 $ 4.97 $ 1.50
December 31, 1995 $ 4.63 $ 2.25
March 31, 1996 $ 3.75 $ 3.00
June 30, 1996 $ 4.00 $ 2.50
September 30, 1996 $ 3.25 $ 2.50
December 31, 1996 $ 5.50 $ 4.00
March 31, 1997 $ 6.38 $ 5.44
June 30, 1997 $ 5.50 $ 3.00
</TABLE>
On September 25, 1997 the bid and asked prices of the Common Stock were $4.25
and $5.00, respectively.
(b) Holders
-------
The number of holders of record of the Company's Common Stock at September 25,
1997 was approximately 236.
(c) Dividends
---------
The Company has never paid any cash dividends on its Common Stock. The
payment of dividends, if any, in the future is within the discretion of the
Board of Directors and will depend on the Company's earnings, if any, its
capital requirements and financial condition, and other relevant factors. The
Board of Directors does not intend to declare any cash or other dividends in
the foreseeable future, but instead intends to retain earnings, if any, for
use in the Company's business operations.
Class B Preferred stockholders are entitled to receive, upon conversion,
redemption or liquidation, cumulative dividends at the per annum rate of $.54
per share on the issued and outstanding Class B Preferred Stock.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(a) Plan of Operation
-------------------
THE DISCUSSION IN ITEM 6(A) 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.
General Discussion of Current and Proposed Operations
-----------------------------------------------------------
As shown in the financials in this Form 10-KSB, over $8,706,000 of equity
has been invested in the Registrant through the close of the fiscal year ended
June 30, 1997. These financial statements also show that on June 30, 1997 the
Company had a negative net worth of $186,604, cumulative losses of $8,893,182,
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-KSB 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 (previously called BionSoil 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.
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 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.
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 "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 $500,000 has been devoted to the effort to build the Company's
business in North Carolina. Current projections are that it will require 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 *.
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 *.
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.
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 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 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
-------------------
The Company tracks its BionSoil business 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 produces wastes
(that can be captured in a Bion 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 June 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 five
additional systems containing 4,175 BionAnimals that are not yet in
production. These systems are in various stages from preliminary design
through construction. As a result, the Company has 14 systems containing
8,905 total BionAnimals in production or covered by signed contracts. The
Company estimates that these BionAnimals should produce approximately 90,000
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 would 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 *.
Initial BionSoil harvests have been made during the last twelve months of
approximately 12,500 cubic yards. 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. 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, approximately 7,000
cubic yards are currently being processed in preparation for sale. 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. 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.
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 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
*.
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 *.
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
future performance, there can be no guarantee that these projections will be
achieved *.
<TABLE>
<CAPTION>
Table 1 *
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>
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 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 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>
<CAPTION>
Table 2 *
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*
</TABLE>
Based on experience to date, the Company anticipates 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, if a
sufficient number of systems are under contract and if the BionSoil production
is on line, the Company is projected 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 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 at its current level, the Company's continued
existence is uncertain.
(b) Management*s Discussion of Financial Condition and Results of
-------------------------------------------------------------------------
Operations
-----
The Company has incurred losses since inception totaling $8,893,182 and
is currently experiencing liquidity problems. The Company*s cash requirements
are currently not being met by revenue, and are not expected to be met by
revenue in the coming fiscal year. 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 as systems sales along with the sales of BionSoil
and BionSoil products are sufficient to fund operations. The Company is
currently negotiating with independent third parties to obtain the necessary
additional funding for the Company. Although management believes that there
is a reasonable basis to remain optimistic, no assumption can be made that the
Company will be able to successfully attain profitable operations and/or raise
sufficient capital to sustain operations.
Liquidity and Capital Resources
----------------------------------
At June 30, 1997 the Company's total assets were $1,222,706 compared to
$556,310 as of June 30, 1996. The change is primarily attributable to an
increase in equipment and assets held for resale (see "Note 6 to Consolidated
Financial Statements"), partially offset by a decrease in cash during the
period.
During the year the Company decided to close its operations in the
Pacific Northwest in order to concentrate more resources on other operations.
The result of this was a one time write off of $25,500 which was a reduction
in deferred revenue and work in progress. The Company also expensed $5,100 for
work performed to date on one of the systems. The write off occurred since
the Company had deferred some of the revenue and was to be compensated from
the sale of the soil product.
The Company's current ratio as of June 30, 1997 was 0.79 : 1 as compared
to 0.63 : 1 as of June 30, 1996. Cash for the period ended June 30, 1997
decreased $109,380 as compared to an increase of $114,811 for the period ended
June 30, 1996.
The Company's total liabilities decreased $1,420,534 for the year ended
June 30, 1997. Notes payable and accrued payroll decreased approximately
$1,590,000 and $71,000, respectively, accounts payable increased $120,353 and
capital lease obligations increased approximately $154,000 due to expenses
associated with the BionSoil start up activity (see" Notes 4 and 6 to
Consolidated Financial Statements") during the period.
The Company issued 247,777 shares of legended and restricted common stock
for cash ($904,488), and 336,905 shares of legended and restricted common
stock for property valued at $600,000 for the year ended June 30, 1997. The
Company, in July 1997, sold one of the properties for $242,000 and intends to
sell the other two properties during the next twelve months. The Company
converted $2,361,905 of notes payable and $469,361 of interest and services
for 1,268,508 and 157,774 shares of legended and restricted common stock,
respectively. The Company also issued warrants for cash and services
totalling $153,250. The Company issued a total of 2,013,039 shares of
legended and restricted common stock during the year ended June 30, 1997.
Results of Operations
-----------------------
Comparison of Fiscal Year Ended June 30, 1997 with Fiscal Year Ended June
-------------------------------------------------------------------------
30, 1996
- - - ---------
During the twelve months ended June 30, 1997 the Company performed work
on 30 new or existing projects as compared to 23 projects in the corresponding
period that ended on June 30, 1996. Contract revenue was slightly higher due
to the increased amount of project activity and the initial sales efforts on
BionSoil and BionSoil products. Contract costs were higher due to the start
up expenses associated with the New York and Florida processing sites.
Included in these expenses are facilities (rent, utilities, maintenance,
etc.), equipment and additional personnel.
The Company increased its contract receivables and work in progress
reserves for bad debt by $30,000 during the year. The Company's reserves
total $60,000 as of June 30, 1997.
General and administrative expenses increased due to employee
compensation, consulting, legal and accounting costs. The Company anticipates
that general and administrative expenses could increase in the future as the
business grows.
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 $296,581 in excess of the original principal of the note.
The Company incurred $286,387 of interest expense on notes payable to an
outside lender and shareholders of the Company (see "Notes 4 and 6 to
Consolidated Financial Statements") and research and development expenses of
$172,816. The $98,228 increase in R&D expenses is due to the increased
research activity in the soils area.
Comparison of Fiscal Year Ended June 30, 1996 with Fiscal Year Ended June
-------------------------------------------------------------------------
30, 1995
- - - ---------
During the twelve months ended June 30, 1996 the Company performed work
on 23 projects as compared to 20 projects in the corresponding period that
ended on June 30, 1995. Contract revenue was slightly higher due to the
increased amount of project activity. The ability to staff projects with
experienced personnel provided efficiencies and therefore lower contract
costs.
The Company recorded a $68,000 write off of contract receivables and work
in progress and reduced the reserves for bad debt by $30,000 during the year.
General and administrative expenses decreased due to lower marketing,
public relations, consulting, legal and accounting costs. These decreased
expenses are partially offset by increased compensation costs. The Company
anticipates that general and administrative expenses could increase in the
future as the business grows.
The Company incurred $218,871 of interest expense on notes payable to
LoTayLingKyur and other shareholders of the Company (see "Notes to
Consolidated Financial Statements").
The Company also sold marketable securities during the year for a gain of
$143,371.
Seasonality
-----------
The Company's system sales and installation business is not seasonal in
nature, except to the extent that weather conditions at certain times of the
year in certain geographic areas may temporarily affect construction and
installation of its systems. However, the Company's projects and markets are
geographically spread so that when weather conditions limit construction
activity in southern market areas, projects in northern markets can proceed,
and when northern area weather is inappropriate, southern projects can
proceed. BionSoil and BionSoil product sales are expected to exhibit a
somewhat seasonal sales pattern with emphasis on spring, summer, and fall
sales.
Inflation and Changes in Prices
-----------------------------------
The Company is unable to predict the impact of inflation on the Company's
activities, however, at this time it is minimal.
ITEM 7. FINANCIAL STATEMENTS
Financial Statements and Supplementary Data are included on Pages F-1
through F-23.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Within the twenty-four (24) months prior to the date of its most recent
Financial Statements, the Company has had no disagreements with its
accountants on accounting or financial disclosure.
PART III
---------
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Executive Officers and Directors
-----------------------------------
The following table sets forth the names, ages and positions held with
respect to each Director and Executive Officer of the Company along with the
period served as a Director.
<TABLE>
<CAPTION>
Name Age Position(s) Period of Service
- - - --------------- ------- ------------------------- -----------------
<S> <C> <C> <C>
Jon Northrop 54 Chairman of the Board, April 9, 1992 to
Chief Executive Officer, Present
Secretary, and Director
Jere Northrop 55 Chief Operating Officer, April 9, 1992 to
President, and Director Present
M. Duane Stutzman 58 Chief Financial Officer, August 31, 1993 to
Treasurer, and Director Present
Ronald G. Cullis 61 Director November 1, 1994 to
Present
John Schwanekamp 49 Director August 31, 1993 to
Present
</TABLE>
All officers and directors will hold office until the next annual meeting
of shareholders. There is no person who is not a designated officer or
director who is expected to make any significant contribution to the business
of the Company.
The following sets forth biographical information as to the business
experience of each current Director and Executive Officer of the Company.
Jon Northrop has been Chairman of the Board, Chief Executive Officer, and
------------
Secretary of the Company since April 9, 1992. Mr. Northrop is a founder of
Bion Technologies, Inc. and has been its Chief Executive Officer since its
inception in September 1989. Before founding Bion Technologies, Inc., he
served in a wide variety of managerial and executive positions. He was most
recently the Executive Director of Davis, Graham & Stubbs, one of Denver's
largest law firms, from 1981 to 1989. Prior to his law firm experience, Mr.
Northrop worked at Samsonite Corporation's Luggage Division in Denver,
Colorado, for over 12 years. His experience was in all aspects of
manufacturing, systems design and implementation, and planning and finance,
ending with three years as the Division's Vice President, Finance. Mr.
Northrop has a bachelors degree in Physics from Amherst College, Amherst,
Massachusetts (1965), an MBA in Finance from the University of Chicago,
Chicago, Illinois (1969), and spent several years conducting post-graduate
research in low energy particle physics at Case Institute of Technology,
Cleveland, Ohio. Jon Northrop is the brother of Jere Northrop.
Jere Northrop has been President, Chief Operating Officer, and a Director
-------------
of the Company since April 9, 1992. Dr. Northrop is a founder of Bion
Technologies, Inc. and has been President since October of 1989 and has been
President of BionSoil, Inc. since September 1, 1997. He has ten years of
recent experience in the management of operations and process control of a
large municipal advanced wastewater treatment plant at Amherst, New York
(1979-1989). He also has 25 years of experimental research on both individual
and complex systems of microorganisms. Dr. Northrop has a bachelors degree in
Biology from Amherst College, Amherst, Massachusetts (1964), a doctorate
degree in Biophysics from Syracuse University, Syracuse, New York, (1969), and
has done post doctoral work at both the University of California at Davis,
Davis, California and The Center for Theoretical Biology, State University of
New York at Buffalo, Buffalo, New York. Jere Northrop also is an Officer and
Director of AutoGnomics Corporation (without compensation) and is the brother
of Jon Northrop.
M. Duane Stutzman has been a Director of the Company since August 31,
-------------------
1993. Immediately prior to joining the Company as a full time employee on May
1, 1994, he spent 11 years with Davis, Graham & Stubbs, a large Denver law
firm, ending as its Chief Financial Officer for the last four years. Prior to
his employment at Davis, Graham & Stubbs, Mr. Stutzman worked for 18 years in
various accounting and financial positions at Samsonite Corporation's Luggage
Division in Denver and the Bendix Corporation's Aerospace Division in Denver
and Teterboro, New Jersey. Mr. Stutzman received a Bachelor of Science degree
in Accounting from Florida Southern College, Lakeland, Florida in 1964. Mr.
Stutzman became Chief Financial Officer on May 1, 1994 and Treasurer on June
30, 1995.
Ronald G. Cullis has been a director of the Company since November 1,
------------------
1994. He has spent the last ten years with PENSA and Altman Weill Pensa,
national consulting firms oriented towards law firms, in-house legal
departments and other service enterprises as a consultant, manager, and
partner. From 1980 to 1985, Mr. Cullis served as the Executive Director of
Milbank, Tweed, Hadley & McCloy, a New York City law firm. Prior to that time
he worked for 20 years in various positions including Vice President-Finance,
and Treasurer for Oceaneering International, Inc., Senior Vice President
Finance, Treasurer and Director for Vetco, Inc., Vice President and Controller
for Fluor Corporation, and in various planning and analysis capacities with a
number of other corporations. Mr. Cullis received a B.A. degree in economics
from Williams College in Williamstown, Massachusetts in 1960.
John Schwanekamp has been a Director of the Company since August 31,
-----------------
1993. He has over 20 years of experience in public administration. From 1971
to 1973 he served as a lieutenant at the U.S. Army Medical/Bioengineering
Research and Development Laboratory in New York and Maryland. The laboratory
designed, fabricated and tested prototype devices and equipment for field
medical needs and prostheses. Since 1973 he has worked at the Chautauqua
County Department of Personnel in Mayville, New York, and currently serves
there as deputy director. That work includes a broad range of general
management duties in public personnel administration and labor relations. Mr.
Schwanekamp received a B.S. degree in Business Administration from Canisius
College in Buffalo, New York in 1970.
The Company has an Executive Committee consisting of Messrs. Jon
Northrop, Jere Northrop, and Duane Stutzman. The Company has Audit and
Compensation Committees which consist of Messrs. Schwanekamp and Cullis.
These committees were formed on August 31, 1993.
Family Relationships
---------------------
Jon Northrop and Jere Northrop are brothers.
ITEM 10. EXECUTIVE COMPENSATION
Summary Compensation
----------------------
The following table shows the aggregate direct remuneration paid by the
Company for the fiscal years ended June 30, 1997, 1996, and 1995 to each
executive officer.
<TABLE>
<CAPTION>
Summary Compensation Table
--------------------------
Annual Compensation Awards Payouts
----------------------- --------------- -------
Other Restric-
Name Annual ted Securities All Other
and Compen- Stock Underlying LTIP Compensa-
Principal Salary1 Bonus sation Award(s) Options/ Payouts tion
Position Year ($) ($) ($) ($) SARs(#) ($) ($)
- - - --------- ------- ------ ------ ------- -------- ---------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Jon Northrop 1997 150,000(2) - - - - - -
Chairman of 1996 133,333(3) - - - - - -
the Board, 1995 100,000(4) - - - - - -
Chief Execu-
tive Officer
and Secretary
Jere Northrop 1997 150,000(2) - - - - - -
President 1996 133,333(3) - - - - - -
and Chief 1995 100,000(4) - - - - - -
Operating
Officer
Duane Stutz-
man 1997 120,000(5) - - - - - -
Chief Finan- 1996 110,000(6) - - 45,777 - - -
cial Officer 1995 90,000(7)
and Treasurer
_______________________________
</TABLE>
(1) Includes compensation paid by Bion Technologies, Inc., the Company's
wholly-owned subsidiary.
(2) Includes $50,000 of salary that was deferred by management and accrued as
a liability to conserve cash for operations.
(3) Includes $33,333 of salary that was deferred by management and accrued as
a liability to conserve cash for operations.
(4) Includes $25,000 of salary that was deferred by management and accrued as
a liability to conserve cash for operations.
(5) Includes $30,000 of salary that was deferred by management and accrued as
a liability to conserve cash for operations.
(6) Includes $20,000 of salary that was deferred by management and accrued as
a liability to conserve cash for operations.
(7) Includes $18,750 of salary that was deferred by management and accrued as
a liability to conserve cash for operations.
Option/SAR Grants Table
-----------------------
<TABLE>
<CAPTION>
% of Total
Number of Options/
Name Securities SARs
and Underlying Granted to
Principal Options/SARs Employees Exercise or Base Expiration
Position Granted(#3) in Fiscal Year Price($/Sh) Date
- - - --------- ------------ -------------- ---------------- ----------
<S> <C> <C> <C> <C>
Jon Northrop
Chairman of
the Board,
Chief Execu-
tive Officer
and Secretary
Jere Northrop
President and
Chief Operat-
ing Officer
Duane Stutzman 20,000 7.7% $5.00 09/01/01
Chief Finan-
cial Officer
and Treasurer
</TABLE>
Aggregated Option/SAR Exercises and FY-End Option/SAR Values
------------------------------------------------------------
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs Options/SARs
Name and at FY-End(#) at FY-End(#)
Principal Shares Acquired Exercisable/ Exercisable/
Position on Exercise Value Realized($) Unexercisable Unexercisable
- - - --------- ------------- ----------------- --------------- -------------
<S> <C> <C> <C> <C>
Jon Northrop -- -- (un) 725,000 --
Chairman of
the Board,
Chief Execu-
tive Officer
and Secretary
Jere Northrop -- -- (un) 725,000 --
President and
Chief Operat-
ing Officer
Duane Stutzman 20,000 18,477
Chief Finan-
cial Officer
and Treasurer
</TABLE>
<PAGE>
Effective September 1, 1993, outside Directors are compensated at a rate
of $75 per month for their contributions to the Company. No additional
compensation is paid for their involvement in the Audit and Compensation
Committees. On June 14, 1996 the Board of Directors of the Company adopted
the 1996 Nonemployee Director Stock Plan. There were no awards made during
the fiscal year ended June 30, 1997. On August 20, 1997 the Company granted,
pursuant to its 1996 Nonemployee Stock Option Plan, options to the two outside
directors Mr. Cullis and Mr. Schwanekamp (see below).
Employment Contracts and Terms of Employment and Change in Control
--------------------------------------------------------------------
Arrangements
-----------
On July 12, 1993, the Company entered into separate employment agreements
(both of which are substantially identical) with each of Jon Northrop (the
Company's Chief Executive Officer) and his brother, Jere Northrop (the
Company's President) for the period commencing on July 1, 1993 and ending on
March 31, 1998 (unless earlier terminated as discussed below). Among other
things, each of the subject employment agreements provides that the affected
employee is to be paid a salary of $100,000 per year (which amount has been
reduced from $150,000 per year to preserve cash flow for the continued
operation of the Company), receive reimbursement for certain business expenses
(including but not limited to expenses for travel, entertainment and similar
items) and receive payment of certain benefits including parking, health,
hospitalization and life insurance, four weeks of paid vacation each year and
such other benefits as the Company's Board of Directors may deem appropriate
from time to time. Effective November 1, 1995 the Compensation Committee
increased Messrs. Northrop's salaries to $150,000 per year of which $50,000
per year will be accrued until such time as cash flow permits payment of the
accrued amounts.
The Company's Board of Directors is required to review Messrs. Northrop's
salaries no less often than once annually with a view to making such increases
in each employee's salary or declaring such bonuses or other benefits as may
be merited and warranted in light of factors considered pertinent by the Board
of Directors at that time.
In the event of disability (as defined in the employment agreements)
prior to the end of the employment period in each case, the affected employee
is entitled to receive his full compensation under his employment agreement
during the full term of the disability. The Company may require such evidence
of disability as it deems appropriate. Also, in the event the employee dies
during the term of the agreement, the Company will be required to pay to the
employee's legal representative all of the compensation due to the employee
under the agreement for a period of one year or the end of the employment
period, whichever occurs earlier.
In the event the employee is terminated for cause (which is defined
generally as conduct including, among other things, criminal activity, willful
misconduct, gross neglect of duties, or breach of the employment agreement by
the employee), the Company is entitled to terminate the affected employment
agreement without any further liability to the employee. In the event the
employee is terminated for any reason other than "for cause," the employee is
entitled to receive his full compensation under the agreement for the entire
duration of the employment period.
In the event that a change in control of the Company occurs at any time
during the term of either of the affected employment agreements (as a result
of which the Board of Directors appoints a person other than the employee to
serve in the capacity for which the employee is employed under the affected
employment agreement or as a result of which the employee elects to resign his
executive position with the Company), each affected employee is nevertheless
entitled to all of the benefits and compensation under his employment
agreement for the entire term thereof, regardless of whether the employee
continues to perform any services for the Company. Each of the employment
agreements is binding upon the Company and its successors and assigns and any
person acquiring, whether by merger, consolidation, liquidation, purchase of
assets or otherwise all or substantially all of the Company's equity or
business.
The employment agreements allow each of the respective employees to
terminate employment without liability upon 90 days written notice to the
Company, and to directly and indirectly engage in other business activities
that are not directly competitive with the business of the Company. Neither
of the subject agreements contains any non-competition or similar provisions.
On January 1, 1995, the Company entered into an employment agreement with
Mr. M. Duane Stutzman (the Company's Chief Financial Officer and Treasurer)
for the period commencing on January 1, 1995 and ending on December 31, 1997
(unless earlier terminated as discussed below). Among other things, the
employment agreement provides that the affected employee is to be paid a
salary of $90,000 per year, receive reimbursement for certain business
expenses (including but not limited to expenses for travel, entertainment and
similar items) and receive payment of certain benefits including parking,
health, hospitalization and life insurance, four weeks of paid vacation each
year and such other benefits as the Company's Board of Directors may deem
appropriate from time to time. Effective November 1, 1995 the Compensation
Committee increased Mr. Stutzman's salary to $120,000 per year of which
$30,000 per year will be accrued until such time as cash flow permits payment
of the accrued amounts.
The Company's Board of Directors is required to review Mr. Stutzman's
salary no less often than once annually with a view to making such increases
in employee salary or declaring such bonuses or other benefits as may be
merited and warranted in light of factors considered pertinent by the Board of
Directors at that time.
In the event of disability (as defined in the employment agreement) prior
to the end of the employment period, Mr. Stutzman is entitled to receive his
full compensation under his employment agreement for a period of twelve months
from the date of his disability. The Company may require such evidence of
disability as it deems appropriate. Also, in the event the employee dies
during the term of the agreement, the Company will be required to pay to the
employee's legal representative all of the compensation due to the employee
under the agreement for a period of six months or the end of the employment
period, whichever occurs earlier.
In the event the employee is terminated for cause (which is defined
generally as conduct including, among other things, criminal activity, willful
misconduct, gross neglect of duties, or breach of the employment agreement by
the employee), the Company is entitled to terminate the affected employment
agreement without any further liability to the employee. In the event the
employee is terminated for any reason other than "for cause," the employee is
entitled to receive his full compensation under the agreement for a period of
twelve months or until the end of the employment period, whichever
comes first.
In the event that a change in control of the Company occurs at any time
during the term of the employment agreement (as a result of which the Board of
Directors appoints a person other than the employee to serve in the capacity
for which the employee is employed under the affected employment agreement or
as a result of which the employee elects to resign his executive position with
the Company), the employee is nonetheless entitled to all of the benefits and
compensation under his employment agreement for the entire term thereof,
regardless of whether the employee continues to perform any services for the
Company. The employment agreement is binding upon the Company and its
successors and assigns and any person acquiring, whether by merger,
consolidation, liquidation, purchase of assets or otherwise all of
substantially all of the Company's equity or business.
The employment agreement allows the employee to terminate employment
without liability upon 90 days written notice to the Company and to directly
and indirectly engage in other business activities that are not directly
competitive with the business of the Company. The subject agreement does not
contain any non-competition or similar provisions.
Effective February 1, 1997, the Company employed C. Duane Kennedy in the
position of President of its two wholly owned subsidiaries Bion Technologies,
Inc. and BionSoil, Inc. Mr. Kennedy spent the last five years as Vice
President of Sales and Marketing at Pursell Industries, Inc., and prior to
that time worked for twenty five years in marketing and sales for Armstrong
World Industries, Olympic Stain, and PPG Industries. Effective September 1,
1997, the Company accepted the resignation of Mr. Kennedy. Mr. Kennedy
requested the resignation for personal reasons which made it not possible for
him to fully carry out the duties of President. Mr. Kennedy has agreed to act
in a consulting role to the Company in the area of BionSoil products marketing
and sales. All unissued warrants contained in Mr. Kennedy*s compensation
package (see Form 8-K dated January 2, 1997) have been canceled. Mr. Kennedy
will receive a monthly consulting fee of $5,000.
Incentive Compensation Plans
------------------------------
On July 9, 1993, the Board of Directors of the Company adopted the Fiscal
Year 1994 Incentive Plan ("Plan"), which Plan was ratified by the Company's
shareholders on August 30, 1993. The maximum number of shares of Common Stock
which may be issued under the Plan is the greater of 250,000 shares or 20% of
the Company's outstanding Common Stock.
Shares issued under the Plan may be authorized but unissued shares of
common stock or treasury shares, at the discretion of a committee (the
"Committee") of not fewer than two directors appointed under the Plan to
administer the Plan. The Company's Compensation Committee, which presently
consists of John Schwanekamp and Ronald G. Cullis, administers the Plan.
The Plan provides for the grant of (i) non-qualified stock options, (ii)
incentive stock options, (iii) limited stock appreciation rights, (iv) tandem
stock appreciation rights, (v) stand-alone stock appreciation rights, (vi)
shares of restricted stock, (vii) shares of phantom stock, and (viii) stock
bonuses (collectively, "Incentive Grants"). In addition, the Plan provides
for the grant of cash bonuses payable when a participant is required to
recognize income for federal income tax purposes in connection with the
vesting of shares of restricted stock or the grant of a stock bonus.
Employees, officers (whether or not they are directors), and advisors of the
Company and its subsidiaries will be eligible to participate in the Plan.
The Committee will determine which persons receive Incentive Grants, the
type of Incentive Grants granted and the number of shares subject to each
Incentive Grant. No Incentive Grant may be granted under the Plan after April
1, 2002. Subject to the terms of the Incentive Plan, the Committee will also
determine the prices, expiration dates and other material features of the
Incentive Grants granted under the Plan. The Committee may, in its absolute
discretion, (i) accelerate the date on which an option or stock appreciation
right granted under the Incentive Plan becomes exercisable, (ii) accelerate
the date on which a share of restricted stock or phantom stock vests and waive
any conditions imposed by the Committee on the vesting of a share of
restricted stock, and (iii) grant Incentive Grants to a participant on the
condition that the participant surrender to the Company for cancellation such
other Incentive Grants (including, without limitation, Incentive Grants with
higher exercise prices) as the Committee specifies.
The Committee will have the authority to interpret and construe any
provision of the Plan and to adopt such rules and regulations for
administering the Plan as it deems necessary. All decisions and
determinations of the Committee are final and binding on all parties. The
Company will indemnify each member of the Committee against any cost, expense
or liability arising out of any action, omission or determination relating to
the Plan, unless such action, omission or determination was taken or made in
bad faith and without reasonable belief that it was in the best interests of
the Company.
The Board of Directors may at any time amend the Plan in any respect,
provided, that no amendment may (i) increase the number of shares of Common
Stock that may be issued under the Plan, (ii) materially increase the benefits
accruing to individuals holding Incentive Grants, or (iii) materially modify
the requirements as to eligibility for participation in the Plan.
The Company awarded certain employees (excluding the Company's officers
and directors) the following options to purchase the Company's common stock
pursuant to the Fiscal Year 1994 Incentive Plan: on August 30, 1996, 40,000
options at a price of $5.00 per share commencing on September 1, 1996 and
expiring on September 1, 2001; on September 26, 1996, 50,000 options at a
price of $3.75 per share commencing on September 25, 1996 and expired on
January 1, 1997, 50,000 options at a price of $5.25 per share commencing on
September 25, 1996 and expired on April 1, 1997, and 50,000 options at a price
of $6.00 per share, commencing on December 15, 1996 and expired on May 1,
1997; on January 16, 1997, 50,000 options at a price of $6.00 per share
commencing on February 1, 1997 and expiring on December 31, 1997.
On August 30, 1996 the Company granted to M. Duane Stutzman, the
Company's C.F.O., 20,000 options to purchase shares of the Company's common
stock at a price of $5.00 per share commencing on September 1, 1996 and
expiring on September 1, 2001.
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 their 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.
On June 14, 1996, the Board of Directors of the Company adopted the 1996
Nonemployee Director Stock Plan ("Director Plan"), which plan will be
submitted for ratification by the Company's shareholders at the next meeting
of the shareholders. The maximum number of shares of Common Stock which may
be issued under the Director Plan is 100,000 shares.
Shares issued under the Director Plan may be authorized but unissued
shares of Common Stock or treasury shares, at the discretion of a committee
(the "Director Plan Committee") of not fewer than two directors appointed
under the Director Plan to administer the Director Plan who are not eligible
to participate in the Director Plan.
The Director Plan provides for the grant of stock options to
participants. All nonemployee directors shall participate in the Director
Plan so long as they remain eligible. No stock option may be granted under
the Director Plan after June 13, 2001. Each participant shall be granted an
option for 5,000 shares of Common Stock for each 12 months they serve as a
director, or if a director for less than the prior 12 months, a pro rata
portion of 5,000 shares of Common Stock based on the number of months such
participant was a nonemployee director of the Company. The exercise price of
the stock option to be granted under the Director Plan shall be 50% of the
average market price for the prior twelve months. The stock options granted
under the Director Plan shall be exercisable as set forth in the option
agreement commencing on the date such option is granted, provided that each
option shall expire five years after the date such option was granted.
The Director Plan Committee will have the authority to interpret and
construe any provision of the Director Plan and to adopt such rules and
regulations for administering the Director Plan as it deems necessary. All
decisions and determinations of the Director Plan Committee are final and
binding on all parties. Neither the Company nor any member of the Board or
the Director Plan Committee or designee thereof will be liable for any damages
resulting from any action or determination made by the Board or the Director
Plan Committee with respect to the Director Plan or any transaction arising
under the Director Plan or any omission in connection with the Director Plan
in the absence of willful misconduct or gross negligence.
The Board of Directors may at any time amend the Director Plan in any
respect, provided, that no amendment may (i) change the class of persons
eligible to receive stock options under the Director Plan or otherwise modify
the requirements as to eligibility for participation in the Director Plan,
(ii) materially increase the benefits accruing to participants under the
Director Plan, or (iii) increase the number of shares of Common Stock which
may be issued under the Director Plan without the approval of the shareholders
of the Company.
On June 6, 1996 a Form S-8 Registration Statement under the Securities
Act of 1933 was filed registering 330,928 shares under the Fiscal Year 1994
Incentive Plan and 100,000 shares under the 1996 Nonemployee Director Plan.
No awards were made under either plan during fiscal year ended June 30, 1996.
On August 20, 1997 the Company granted, pursuant to the Company's 1996
Nonemployee 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, 1997 and 5,000 for the year ended June 30, 1996).
Indemnification
---------------
The Articles of Incorporation and the Bylaws of the Company provide that
the Company may indemnify its officers and directors for costs and expenses
incurred in connection with the defense of actions, suits or proceedings where
the officer or director acted in good faith and in a manner he reasonably
believed to be in the Company's best interest and is a party by reason of his
status as an officer or director.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and
controlling persons of the Company pursuant to the foregoing provisions or
otherwise, the Company has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable.
Report on Repricing of Options/SARs
---------------------------------------
The Company has not during the fiscal year ending June 30, 1997 repriced
any stock options or SARs previously awarded to any of the named executive
officers.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Security Ownership of Certain Beneficial Owners and Security
-------------------------------------------------------------------
Ownership of Management
-------------------
The following table sets forth information as of September 25, 1997
(treating all 18,834 outstanding shares of Series B Convertible Preferred
Stock ["Preferred Stock"] as if each share of Preferred Stock were converted
into Common Stock) based on information obtained from the persons named below,
with respect to the beneficial ownership of Common Stock by (i) each person
known by the Company to be the owner of more than 5% of the outstanding Common
Stock, (ii) each officer and director, and (iii) all officers and directors as
a group:
<TABLE>
<CAPTION>
Name and Address Shares of Common Percentage of Common
of Beneficial Owner Stock Owned Stock Outstanding
- - - ---------------------------- ----------------------- ---------------------
<S> <C> <C>
Jon Northrop 2,349,457 Shares1,3,4,5 60.5%
1922 W. Sanibel Court
Littleton, CO 80120
Jere Northrop 290,458 Shares2,3 7.5%
1961 Tonawanda Creek Road
Amherst, NY 14228
LoTayLingKyur, Inc 1,310,290 Shares4 34.0%
1280 Terminal Way, #3
Reno, NV 89502
Dublin Holding, Ltd 756,209 Shares5 19.6%
c/o AmeriLawyer, Ltd.
Attn: Lloyd Rodney, Esq.
Harbor House
P.O. Box 120
Grand Turk
Turks & Caicos Isl., B.W.I.
John Schwanekamp 10,125 Shares6 0.3%
Sherman Road
Westfield, NY 14787
M. Duane Stutzman 103,583 Shares 2.6%
7483 West Laurel Avenue
Littleton, CO 80123
Ronald G. Cullis 15,110 Shares 0.4%
76 Northview Lane
Chesapeake City, MD 21915
Management as a Group 2,627,688 Shares 65.2%
(5 Persons)
___________________
</TABLE>
1 Jon Northrop owns of record 141,913 shares and has investment rights for
141,913 shares. Because of voting rights and agreements Mr. Northrop holds
voting rights for a total of 2,349,457 shares. This total includes 14,435
shares owned by the Family Trust U/A 3rd U/W Catherine Northrop.
Additionally, includes 2,066,499 shares which Jon Northrop (the Company's
Chief Executive Officer) has the right to vote through December 31, 2005,
provided however that if the Company is not profitable by June 30, 1999 said
voting agreement will terminate on January 1, 2000, all of which shares are
owned by LoTayLingKyur, Inc. ("LTLK") and Dublin Holding, Ltd. (see footnotes
4 and 5). Does not include 4,000 shares owned by his wife and 58,550 shares
owned by adult children of Jon Northrop each of which Mr. Northrop disclaims
beneficial ownership.
2 Jere Northrop owns of record 149,413 shares and has investment rights
for 149,413 shares. Because of voting rights and agreements Mr. Northrop
holds voting rights for a total of 290,458 shares. The total includes 10,435
shares owned by the Family Trust U/A 3rd U/W Catherine Northrop. Does not
includes 4,000 shares owned by his wife and 54,550 shares owned by an adult
child of Jere Northrop, each of which Mr. Northrop disclaims beneficial
ownership.
3 Includes 126,610 shares owned by Delta Petroleum Corporation which Jon
Northrop and Jere Northrop jointly have the right to vote until December 31,
1999.
4 LoTayLingKyur, Inc. ("LTLK") is the assignee of shares previously owned
by Stonehenge Capital Corporation. The figure indicated includes 1,101,990
shares owned by LTLK directly, 130,300 owned by Mark Smith, LTLK's President,
64,000 shares owned by Mark Smith's wife, Kelly Moone, and 14,000 shares owned
by the children of Mark Smith and his wife. Jon Northrop (the Company's Chief
Executive Officer) has the right to vote all 1,310,290 shares pursuant to a
voting agreement that expires on December 31, 2005, provided however that if
the Company is not profitable by June 30, 1999 said voting agreement will
terminate on January 1, 2000. LTLK has investment rights and no voting power
to all 1,310,290 shares.
5 Dublin Holding, Ltd. ("DHL") - Jon Northrop (the Company's Chief
Executive Officer) has the right to vote all 756,209 shares pursuant to a
voting agreement that expires on December 31, 2005, provided however, that if
the Company is not profitable by June 30, 1999 said voting agreement will
terminate on January 1, 2000.
6 Does not include 125 shares owned by Mr. Schwanekamp's wife of which he
disclaims beneficial ownership. Mr. Schwanekamp has full voting power and
investment rights on his stock.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Effective December 20, 1994, the Company entered into a Settlement
Agreement and General Release (the "Settlement Agreement") with Underwriters
Financial Group ("UFG") and Delta Petroleum Corporation ("Delta") pursuant to
which Delta delivered to the Company 20,000 restricted shares of Delta's
common stock (as an inducement to the Company to enter into the subject
Settlement Agreement with UFG), and UFG delivered to the Company 100,000
restricted shares of UFG's common stock as full and final payment of all
amounts due and owing to the Company under the terms and conditions of an
investment instrument (the "UFG Investment Instrument"), which had been the
subject of some dispute between the Company and UFG since approximately
December, 1993. The Settlement Agreement provided, among other things, that
UFG released any claims that it might have against Delta and certain of
Delta's officers which in any manner related to the UFG Investment Instrument
or any other activity between the Company and UFG, and further, that both UFG
and the Company fully released and discharged each other (and each of their
respective directors, officers, attorneys, employees, members,
representatives, agents, successors, assigns, parents, subsidiaries and
affiliates) from any and all claims that either party may have had against the
other by reason of any matter, cause or event whatsoever prior to the date of
the Settlement Agreement. As of June 30, 1997, the Company had received an
aggregate of $963,248 in net proceeds from the sale of 172,500 of the Delta
Shares (including the $45,930 received prior to the subject dispute) held as
collateral for the UFG Investment Instrument and 84,607 shares of the UFG
Stock from the Settlement Agreement.
The Company currently subleases office space from Delta under a
month-to-month oral agreement pursuant to which the Company subleases four
offices within Delta's existing office space, and is permitted to utilize
Delta's office equipment for an aggregate cost to the Company of $3,575 per
month.
Effective May 6, 1997, the Company replaced an existing May 16, 1995
agreement among the Company, Jon Northrop (the Company's Chief Executive
Officer), Jere Northrop (the Company's President) and LoTayLingKyur, Inc.
("LTLK"), and an existing January 8, 1997 agreement among the Company,
BionSoil, Inc. and LTLK with a new agreement among the Company, BionSoil,
Inc., LTLK, Dublin Holding, Ltd. ("DHL"), Kelly Moone ("KM") and Mark A. Smith
("MAS"). LTLK, DHL, KM, and MAS are hereinafter collectively referred to as
the "Investors," and the May 6, 1997 agreement is hereinafter referred to as
the "Replacement Agreement."
Among other things, the Replacement Agreement provides that the Company
is released from any and all obligations to each of the Investors pursuant to:
(a) a May 16, 1995 convertible promissory note of the Company owned jointly by
LTLK and DHL (see Form 10-KSB/A for the fiscal year ended June 30, 1996); (b)
a promissory note and other rights related to a loan to the Company dating
from January 8, 1997 (see 8-K dated January 2, 1997); and (c) amounts owed by
the Company to LTLK in connection with an April 1997 loan arrangement and
certain other unpaid amounts. As of the date of the Replacement Agreement,
the subject obligations that were released aggregated an agreed upon
$2,146,045.
In accordance with the terms of the Replacement Agreement, the Investors
also assigned to the Company various real property interests owned by LTLK and
KM by quit claim deeds for an aggregate value of $710,000. In exchange, the
Company issued to the Investors 1,574,308 shares of the Company's Common
Stock, a Class E1 Warrant to purchase an additional 937,154 shares of the
Company's Common Stock at a price of $6.00 per share during the period from
January 1, 2001 through December 31, 2001 and a Class X Warrant to purchase an
additional 1,087,154 shares of the Company's Common Stock at a price of $10.00
per share during the period from January 1, 2003 through December 31, 2003.
In accordance with the terms of the Replacement Agreement, the provisions
of the various debt instruments among the parties were terminated in their
entirety. In addition, the Replacement Agreement provides that in the event
of an underwritten offering by the Company, the Investors will not be subject
to any lock-up agreement which does not allow the Investors to sell at least
7,500 shares of the Company's Common Stock per month (on a cumulative basis),
and that any such lock-up agreement must terminate in its entirety no more
than one year after the completion of any such offering.
The Replacement Agreement further provides that the Investors do not now
and will not attempt to exercise any control over the management or business
of the Company and, further, that the Investors will not have any direct or
indirect power to control the Company (despite the size of their stockholdings
in the Company) due to an existing Voting Agreement, provided, however, that
if the Company is not profitable by June 30, 1999, the Voting Agreement will
terminate on January 1, 2000, unless otherwise agreed in writing by the
Company and the Investors.
Pursuant to the Replacement Agreement, the Company is required to
indemnify and hold the Investors harmless from any liability to the Company
(or others) pursuant to 16(b) of the Securities Exchange Act of 1934 for
"short swing profits" which may arise from matching the transactions which are
the subject of the Replacement Agreement (including transactions between and
among LTLK, DHL, KM, and/or MAS in connection with such agreement) with any
other transaction.
The Replacement Agreement also provides that LTLK will provide consulting
services to the Company commencing July 1, 1997 with base monthly fees of
$2,500 until November 1997, at which time such base monthly fee will increase
by $500 per month on November 1 of each year thereafter through November 1,
2001. The consulting services are to be provided for a term of 64 months with
the base monthly consulting fees to be paid to LTLK on the 15th of each month
commencing July 1997.
On April 18, 1995 the Company repaid Jon Northrop (an officer and
director of the Company and the Company) $10,500 to fully pay off a promissory
note of the Company held by Mr. Northrop. The note originated as a result of
cash advances from Jon Northrop to the Company on April 14, 1995 to provide
the Company with operating capital.
On June 30, 1996 the Company converted the outstanding principal and
interest balance of $57,920 on a note held by Harley E. Northrop into 28,960
shares of restricted and legended common stock of the Company in full
satisfaction of the debt obligation.
On October 26, 1996, the Company and Harley E. Northrop ("Lender")
entered into an agreement whereby Lender made a $500,000 credit facility
available to Company under the following terms and conditions. The Company
may request that funds be advanced on either the first or the fifteenth of any
month, and Lender will make such funds available within fifteen working days;
interest will be paid monthly in cash by the Company to Lender at the rate of
1% per month on the drawn down balance, and if by mutual agreement not paid in
cash, will be added to the unpaid balance; the entire drawn down balance will
be due and payable on December 31, 1999; there will be no prepayment penalties
should the Company pay off the drawn down amount prior to December 31, 1999;
advances from Lender to the Company shall be evidenced by a promissory note;
the entire outstanding balance may be converted into units (the "Units") at a
conversion price of $4.50 per Unit by mutual agreement between the Company and
Lender at any time after January 1, 1998; each Unit shall consist of one share
of the restricted and legended common stock of the Company plus one warrant
authorizing the holder to purchase one share of the restricted and legended
common stock of the Company for a price of $4.50 per share for a period
commencing at the time of conversion and expiring December 31, 2001; as
additional consideration for establishing this credit facility, for each $5.00
loaned to the Company, the Company shall issue to Lender one warrant
("Warrant") to purchase one share of the Company*s stock between November 15,
1998 and November 15, 2001 at a price of $4.50 per share; as incentive for the
Company to pay the balance due at an earlier date than December 31, 1999, the
Company agreed that if it pays the entire balance due on or before December
31, 1998, the quantity of Warrants issued will be reduced by 50%.
On December 1, 1996 Jon Northrop, the Company*s C.E.O., Jere Northrop,
the Company*s President and C.O.O., and M. Duane Stutzman, the Company*s
Treasurer and C.F.O. 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 has 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.
<PAGE>
Effective September 15, 1997, the Company authorized the issuance of
restricted stock and warrants to purchase stock to the following officer: M.
Duane Stutzman, the Company*s Chief Financial Officer, will receive the
following: (a) 10,000 shares of the Company*s restricted and legended common
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 shall vest
and be exercisable commencing September 15, 1997; (c) 20,000 warrants with an
exercise price of $10.00 per share shall vest and be exercisable on September,
15, 1998, 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 shall vest and be
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 shall 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*s two wholly owned subsidiaries Bion Technologies,
Inc. and BionSoil, Inc., 75,000 Class E-1 warrants 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 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 on December 31, 2003.
All future and ongoing transactions with affiliates will be on terms
which the Company's management believes are no less favorable than could be
obtained from non-affiliated parties. All future and ongoing loans to
affiliates, officials and shareholders of the Company will be approved by a
majority vote of the disinterested directors.
PART IV
--------
ITEM 13 EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
--------
The Exhibits listed in the Index to Exhibits appearing at page 33 are filed
as part of this report.
Reports on Form 8-K
-------------------
The following current reports on Form 8-K were filed during fiscal year 1997
and the first quarter of fiscal year 1998:
Form 8-K dated:
August 30, 1996 reporting on items 5 & 7
December 1, 1996 reporting on items 5 & 7
January 2, 1997 reporting on items 5 & 7
April 13, 1997 reporting on items 5 & 7
May 19, 1997 reporting on items 5 & 7
September 1, 1997 reporting on items 5.
<PAGE>
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the Company has caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
BION ENVIRONMENTAL TECHNOLOGIES, INC.
Date: September 29, 1997 By: /s/ Jon Northrop
--------------------
Jon Northrop
Chief Executive Officer
In accordance with the Securities Exchange Act of 1934, this Report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name and Capacity Date
---------------------- ----------------
<S> <C>
/s/ Jon Northrop September 29, 1997
- - - ------------------
Jon Northrop, Chief Executive
Officer, Director
/s/ Jere Northrop September 29, 1997
- - - -------------------
Jere Northrop, President, Director
/s/ M. Duane Stutzman September 29, 1997
- - - ------------------------
M. Duane Stutzman, Chief Financial
Officer, Treasurer, Director
/s/ John Schwanekamp September 29, 1997
- - - ----------------------
John Schwanekamp, Director
/s/ Ronald G. Cullis September 29, 1997
- - - -----------------------
Ronald G. Cullis, Director
</TABLE>
INDEX TO EXHIBITS
(2) Plan of Acquisition, Reorganization, Arrangement, etc. None.
------------------------------------------------------
(3) Articles of Incorporation and Bylaws
------------------------------------
3.1 Articles of Incorporation previously filed and incorporated herein by
reference.
3.2 Bylaws previously filed and incorporated herein by reference.
(4) Instruments Defining the Rights of Holders, Inc. Indentures
-----------------------------------------------------------
Statement of Designation and Determination of Preferences of Series A
Convertible Prefered Stock and Series B Convertible Preferred Stock previously
filed and incorporated by reference.
(9) Voting Trust Agreement. None.
----------------------
(10) Material Contracts. None.
-------------------
(11) Statement Re Computation of Per Share Earnings. None.
----------------------------------------------
(13) Annual or Quarterly Reports, Form 10-Q. Previously filed and
incorporated herein by reference.
--------------------------------------------------------------
(16) Letter on Changes in Certifying Accountant. None.
------------------------------------------
(18) Letter on Changes in Accounting Principles. None.
------------------------------------------
(21) List of Subsidiaries. Attached and incorporated herein by reference.
--------------------
(22) Published Report Regarding Matters Submitted to Vote. None.
----------------------------------------------------
(23) Consents of Experts. Attached to financial statements and incorporated
-------------------
herein by reference.
(24) Power of Attorney. None.
-----------------
(27) Financial Data Schedule.
-----------------------
(28) Information from Reports Furnished to State Insurance Regulatory
Authorities.
----------------------------------------------------------------
None.
(29) Additional Exhibits. None.
--------------------
EXHIBIT 21
BION ENVIRONMENTAL TECHNOLOGIES, INC.
Subsidiary List
Bion Technologies, Inc., incorporated under the laws of the State of Colorado.
BionSoil, Inc., incorporated under the laws of the State of Colorado.
<PAGE>
BION ENVIRONMENTAL
TECHNOLOGIES, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS AND
INDEPENDENT AUDITORS' REPORT
JUNE 30, 1997 AND 1996
<PAGE>
BION ENVIRONMENTAL TECHNOLOGIES, INC.
AND SUBSIDIARIES
TABLE OF CONTENTS
-----------------
Page
----
Independent Auditors' Report F - 1
Financial Statements
Consolidated Balance Sheet F - 2
Consolidated Statements of Operations F - 3
Consolidated Statement of Changes in Stockholders' Deficit F - 4
Consolidated Statements of Cash Flows F - 5
Notes to Consolidated Financial Statements F - 7
<PAGE>
INDEPENDENT AUDITORS' REPORT
To The Board of Directors and Stockholders
Bion Environmental Technologies, Inc.
Denver, CO
We have audited the accompanying consolidated balance sheet of Bion
Environmental Technologies, Inc. and Subsidiaries as of June 30, 1997 and the
related consolidated statement of operations, stockholders' deficit, and cash
flows for the years ended June 30, 1997 and 1996. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Bion
Environmental Technologies, Inc. and Subsidiaries as of June 30, 1997, and the
results of their operations and their cash flows for the year ended June 30,
1997 and 1996, in conformity with generally accepted accounting principles.
The consolidated financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2, the Company
has incurred losses since inception approximately $8,900,000. Continued
losses without raising additional capital raise substantial doubt about its
ability to continue as a going concern. Management's plans in regard to these
matters are discussed in Note 2. The consolidated financial statements do not
include any adjustments that might result from this uncertainty.
/s/Ehrhardt Keefe Steiner & Hottman PC
Ehrhardt Keefe Steiner & Hottman PC
August 6, 1997
Denver, Colorado
<PAGE>
BION ENVIRONMENTAL TECHNOLOGIES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 1997
ASSETS
<TABLE>
<CAPTION>
<S> <C>
Current assets
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . $ 9,232
Accounts receivable. . . . . . . . . . . . . . . . . . . . . . . . 5,042
Contract receivables (net of allowance of $30,000) . . . . . . . . 67,921
Work in progress (net of allowance of $30,000) (Note 3). . . . . . 168,000
Assets held for resale (Note 6). . . . . . . . . . . . . . . . . . 600,000
----------
Total current assets . . . . . . . . . . . . . . . . . . . . . 850,195
----------
Property and equipment, net of accumulated depreciation of $39,398. 244,824
----------
Other assets
Deferred long-term contact costs (Note 3). . . . . . . . . . . . . 77,333
Patents, net . . . . . . . . . . . . . . . . . . . . . . . . . . . 38,660
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,694
----------
Total other assets . . . . . . . . . . . . . . . . . . . . . . 127,687
----------
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,222,706
==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . $ 302,820
Accounts payable - related party . . . . . . . . . . . . . . . . . 29,426
Line-of-credit - stockholder (Note 4). . . . . . . . . . . . . . . 105,000
Note payable (Note 4). . . . . . . . . . . . . . . . . . . . . . . 325,000
Notes payable-stockholders (Note 4). . . . . . . . . . . . . . . . 82,171
Capital lease obligation (Note 4). . . . . . . . . . . . . . . . . 62,546
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . 36,359
Accrued payroll (Notes 6 and 8). . . . . . . . . . . . . . . . . . 135,500
----------
Total current liabilities. . . . . . . . . . . . . . . . . . . 1,078,822
Long-term liabilities
Capital lease obligation (Note 4). . . . . . . . . . . . . . . . . 149,488
Deferred contract revenue (Note 3) . . . . . . . . . . . . . . . . 181,000
----------
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . 1,409,310
----------
Commitments and contingencies (Notes 2, 8 and 9)
Stockholders' deficit (Note 5)
Preferred stock, series B, $.001 par value,
85,000 shares authorized, 18,834 shares issued
and outstanding (liquidation preference of $121,787). . . . . . . 95,482
Common stock, no par value, 100,000,000 shares authorized,
3,696,816 shares issued and outstanding. . . . . . . . . . . . . 7,983,274
Common stock subscribed. . . . . . . . . . . . . . . . . . . . . 627,822
Accumulated deficit. . . . . . . . . . . . . . . . . . . . . . . (8,893,182)
------------
Total stockholders' deficit. . . . . . . . . . . . . . . . . (186,604)
------------
Total liabilities and stockholders' deficit . . . . . . . . . . . $ 1,222,706
============
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE>
BION ENVIRONMENTAL TECHNOLOGIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended
June 30,
--------------------------
1997 1996
------------ ------------
<S> <C> <C>
Contract revenues. . . . . . . . . . $ 133,925 $ 120,256
Contract costs . . . . . . . . . . . 439,462 176,019
------------ ------------
Gross loss . . . . . . . . . . . . . (305,537) (55,763)
General and administrative expenses. 2,326,389 1,647,308
------------ ------------
Loss from operations . . . . . . . . (2,631,926) (1,703,071)
Other income (expense)
Interest income . . . . . . . . . . 111,964 4,254
Interest expense. . . . . . . . . . (286,387) (218,861)
Research and development. . . . . . (172,816) (74,588)
Gain on securities. . . . . . . . . - 143,371
------------ ------------
Net loss . . . . . . . . . . . . . . $(2,979,165) $(1,848,895)
============ ============
Net loss per common share. . . . . . $ (1.38) $ (1.16)
============ ============
Weighted common shares outstanding . 2,161,347 1,597,350
============ ============
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
BION ENVIRONMENTAL TECHNOLOGIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
Preferred Stock Preferred Stock
Series A Series B
------------------ -----------------
Shares Amount Shares Amount
-------- -------- ------- --------
<S> <C> <C> <C> <C>
Balance at June 30, 1995 . . . 90 $20,250 18,834 $95,482
Conversion of Preferred A
Stock into Common Stock . . . (90) (20,250) - -
Conversion of common stock
subscriptions to common stock - - - -
Common Stock subscriptions for
services . . . . . . . . . . - - - -
Issuance of common stock for cash. - - - -
Conversion of note payable to
common stock . . . . . . . . - - - -
Issuance of common stock for
services . . . . . . . . . . - - - -
Dividends declared, preferred
stock Series B . . . . . . . - - - -
Net loss . . . . . . . . . . - - - -
-------- -------- ------ --------
Balance at June 30, 1996 . . - - 18,834 95,482
Conversion of common stock
subscriptions to common stock - - - -
Common stock subscriptions for
services . . . . . . . . . . - - - -
Issuance of common stock for
cash . . . . . . . . . . . . - - - -
Issuance of common stock for
property . . . . . . . . . . - - - -
Conversion of notes payable to
common stock . . . . . . . . - - - -
Issuance of common stock for
services and interest . . . - - - -
Issuance of warrants for services
and interest . . . . . . . . - - - -
Issuance of warrants for cash - - - -
Dividends declared, preferred
stock Series B . . . . . . . - - - -
Net loss. . . . . . . . . . . - - - -
------- ------ ------ --------
Balance at June 30, 1997 . . - $ - 18,834 $95,482
======= ======= ====== ========
</TABLE>
Continued below:
<TABLE>
<CAPTION>
Common
Common Stock Stock Accumulated
Shares Amount Subscribed (Deficit) Total
-------- ------- ------------ ------------ ------
<S> <C> <C> <C> <C> <C>
Balance at June 30,
1995 1,449,959 $2,926,142 $ 19,338 $(4,038,817) $ (977,605)
Conversion of
Preferred A Stock
into Common Stock 4,500 20,250 - - -
Conversion of common
stock subscriptions
to common stock 3,723 14,503 (14,503) - -
Common stock
subscriptions for
services - - 44,703 - 44,703
Issuance of common
stock for cash 156,560 371,230 - - 371,230
Conversion of note
payable to
common stock 28,960 57,920 - - 57,920
Issuance of common
stock for services 40,075 95,225 - - 95,225
Dividends declared,
preferred stock
Series B - - - (16,112) (16,112)
------- ------- --------- ---------- ---------
Net loss - - - (1,848,895) (1,848,895)
Balance at June 30,
1996 1,683,777 3,485,270 49,538 (5,903,824) (2,273,534)
Conversion of common
stock subscriptions
to common stock 2,075 9,000 (9,000) - -
Common stock
subscriptions for
services - - 587,284 - 587,284
Issuance of common
stock for cash 247,777 904,488 - - 904,488
Issuance of
common stock for
property 336,905 600,000 - - 600,000
Conversion of
notes payable
to common stock 1,268,508 2,361,905 - - 2,361,905
Issuance of common
stock for services
and interest 157,774 469,774 - - 469,361
Issuance of warrants
for services - 122,000 - - 122,000
Issuance of warrants
for cash - 31,250 - - 31,250
Dividends declared,
preferred stock Series
B - - - (10,193) (10,193)
Net loss - - - (2,979,165) (2,979,165)
--------- --------- ------- ------------ -----------
Balance at June 30,
1997 3,696,816 $7,983,274 $627,822 $(8,893,182) $(186,604)
========= ========= ======== ============ ===========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
BION ENVIRONMENTAL TECHNOLOGIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended
June 30,
------------
1997 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities
Net loss . . . . . . . . . . . . . . . . . . . . . $(2,979,165) $(1,848,895)
------------ ------------
Adjustments to reconcile net loss to
net cash used in operating activities -
Depreciation and amortization. . . . . . . . . . 35,617 4,981
Accounts receivable and work-in progress
allowance . . . . . . . . . . . . . . . . . . . 30,000 -
Issuance of stock for services, compensation
and interest. . . . . . . . . . . . . . . . . . 469,360 148,848
Issuance of note payable for services and interest 6,015 80,921
Issuance of warrants for services. . . . . . . . 122,000 -
Gain on sale of marketable equity securities . . - (143,371)
Issuance of subscribed stock for services. . . . 347,284 -
Changes in assets and liabilities -
Receivables. . . . . . . . . . . . . . . . . . (70,893) 38,026
Costs and estimated excess of billings on
contracts. . . . . . . . . . . . . . . . . . 16,186 243,707
Prepaid expenses and other . . . . . . . . . . (5,179) (3,814)
Accounts payable . . . . . . . . . . . . . . . 65,409 (68,409)
Accrued liabilities. . . . . . . . . . . . . . 209,773 55,657
Deferred contact revenue . . . . . . . . . . . - (176,000)
Deferred long-term contract costs. . . . . . . 5,100 35,009
------------ ------------
1,108,672 215,555
------------ ------------
Net cash used in operating activities. . . . (1,748,493) (1,633,340)
------------ ------------
Cash flows from investing activities
Purchases of equipment . . . . . . . . . . . . . . (19,661) -
Sale of marketable equity securities . . . . . . . - 1,418,018
Investment in patents. . . . . . . . . . . . . . . (645) (16,893)
------------ ------------
Net cash (used in) provided by investing
activities. . . . . . . . . . . . . . . . . (20,306) 1,401,125
------------ ------------
Cash flows from financing activities
Payments on notes payable. . . . . . . . . . . . . - (60,460)
Proceeds from notes payable. . . . . . . . . . . . 659,976 39,047
Proceeds from stock and warrant issuances. . . . . 935,739 371,230
Proceeds from line-of-credit . . . . . . . . . . . 105,000 -
Payments on capital lease obligations. . . . . . . (41,296) (2,791)
------------ ------------
Net cash provided by financing activities. . 1,659,419 347,026
------------ ------------
Net (decrease) increase in cash and cash equivalents. (109,380) 114,811
Cash and cash equivalents at beginning of period. . . 118,612 3,801
------------ ------------
Cash and cash equivalents at end of period. . . . . . $ 9,232 $ 118,612
============ ===========
</TABLE>
Supplemental disclosure of cash flow information
Cash paid during the year for interest was $160,643 (1997) and $141,316
(1996).
Supplemental disclosures of non-cash financing activities
For the year ended June 30, 1997 -
Purchase of equipment under capital leases for $191,801
Conversion of debt, interest and services totaling $2,361,905 into 1,268,508
shares commons stock
Declared and accrued dividends of $10,193 for preferred stock Series B
Issued 336,905 shares common stock for property valued at $600,000
Wrote off $25,500 of work in process and deferred revenue
Converted $240,000 of accrued wages to officers into 80,000 shares subscribed
stock
Converted $9,000 of common stock subscribed into 2,075 shares of common stock
For the year ended June 30, 1996 -
Conversion of 90 shares of Preferred A Stock to 4,500 shares of Common Stock
valued at $20,250
Conversion of subscribed stock to 3,723 shares of common stock valued
at $14,503
Conversion of note payable and accrued interest of $57,920 to 28,960 shares
of common stock
Entered into a capital lease for equipment for $64,320
Declared and accrued dividends of $16,112 for preferred stock Series B
Issuance of 25,000 shares of common stock valued at $50,000 for consulting
services
See notes to consolidated financial statements.
F-6
BION ENVIRONMENTAL TECHNOLOGIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- - - ---------------------------------------------------
Nature of Business
- - - ---------------------------------------------------
The accompanying consolidated financial statements include the accounts of
Bion Environmental Technologies, Inc. ("Biet"), and its wholly owned
subsidiaries, Bion Technologies, Inc. ("Bion") and BionSoil, Inc.
("BionSoil"), (collectively the Company). The Company is engaged in the
designing, marketing and overseeing the installation and operation of
environmentally effective and economically efficient treatment systems (based
on proprietary and/or patented processes) for the bio-conversion of
wastewater, with customers in New York, Washington, North Carolina and
Florida. Additionally, the Company has entered the market with an animal
waste management system, BionSoil NMS, which converts flushed or scraped
animal wastes into an economically valuable product, BionSoil, which the
Company intends to market and sell.
Principles of Consolidation
- - - -----------------------------
The consolidated financial statements as of June 30, 1997 and 1996 include the
accounts of Biet, Bion and BionSoil. All significant intercompany
transactions and balances have been eliminated in consolidation.
Contract Receivables
- - - ---------------------
The Company grants credit in the normal course of business to customers who
are located primarily in the New York, Florida, North Carolina and Washington
state areas. To reduce credit risk, the Company monitors the financial
condition and performs credit analysis prior to entering into contracts.
Property and Equipment
- - - ------------------------
Property and equipment is stated at cost, equipment under capital lease is
stated at the lower of fair market value or the net present value of the
minimum lease payments at the inception of the lease. Depreciation is
provided using the straight-line method over the estimated useful lives of the
related assets ranging from three to seven years. For the periods ended June
30, 1997 and 1996, depreciation was recorded in the amounts of $32,854 and
$3,108, respectively.
Revenue and Cost Recognition
- - - -------------------------------
TREATMENT SYSTEM CONTRACTS
Revenues from fixed-price system development and construction type contracts
are recognized on the percentage-of-completion method, measured by the
percentage of costs incurred to date to total estimated contract costs for
each contract. This method is used because the Company considers cost to date
to be the best available measure of progress on these contracts.
Contract costs include all direct material and labor costs and those indirect
costs related to contract performance. General and administrative costs are
charged to expense as incurred. Provisions for estimated losses on
uncompleted contracts are made in the period in which such losses are
determined. Changes in job performance, job conditions and estimated
profitability, including those arising from contract penalty provisions, and
final contract settlements may result in revisions to costs and income and are
recognized in the period in which the revisions are determined.
BIONSOIL CONTRACTS
Beginning in fiscal year 1994, the Company entered into contracts for
producing BionSoil with fees to be paid through a defined portion of the net
profit from the sale of the product. The contractual fees as of June 30, 1997
are $182,500 for these systems.
Since the Company is paid from the sales proceeds of BionSoil, all costs and
revenue earned with the construction of the systems are deferred until the
sale of BionSoil commences.
All capitalized BionSoil system costs for each contract are amortized on the
unit-of-production method once sale of BionSoil commences using estimates of
sales. If the results of an assessment indicate that the contract is
impaired, the amount of the impairment is expensed. As of June 30, 1997, no
material sales of the product have been consummated and accordingly, no
revenue has been recognized in the financial statements on these contracts.
At June 30, 1997, no contracts are deemed to be impaired.
Income Taxes
- - - -------------
Deferred tax liabilities and assets are determined based on the difference
between the financial statement and tax basis of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected
to reverse. The measurement of deferred tax assets is reduced, if necessary,
by the amount of any tax benefits that, based on available evidence, are not
expected to be realized.
Patents
- - - -------
Patent applications are recorded at cost and are amortized when the patent is
issued over a period of the lesser of the patent's estimated economic or legal
life. For the periods ended June 30, 1997 and 1996, amortization was recorded
in the amount of $2,763 and $1,873, respectively.
Research and Development Expenses
- - - ------------------------------------
Research and development expenses are expensed as incurred and include both
expenses for new technology development and expenses for ongoing efforts to
improve existing technologies.
Loss Per Common Share
- - - ------------------------
Net loss per common share is based on the weighted average number of common
shares outstanding. Common stock equivalents were not considered as their
inclusion would be antidilutive.
Use of Estimates
- - - ------------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
NOTE 2 - CONTINUED OPERATIONS
- - - ---------------------------------
The accompanying financial statements have been prepared on a going concern
basis which contemplates the realization of assets and liquidation of
liabilities in the ordinary course of business. In prior years, the Company
had been in the development stage and its principal activities had consisted
of raising capital, performing research and development activities and the
development of their products. The Company has not yet begun earning
significant revenue from its planned principal operations. Consequently, as
of June 30, 1997, the Company has incurred accumulated losses totaling
approximately $8,900,000, resulting in an accumulated stockholders deficit of
approximately $187,000. Cash flows from current operations are not sufficient
to meet the obligations of the Company. Management plans include continuing
efforts to obtain additional capital to fund operations until contract sales
along with sales of BionSoil are sufficient to fund operations. There can be
no assurance that the Company will be able to successfully attain profitable
operations or raise sufficient capital.
NOTE 3 - COST AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
- - - ----------------------------------------------------------------------
The Company's costs and estimated earnings on uncompleted treatment system
contracts consist of the following:
<TABLE>
<CAPTION>
June 30,
1997
-----------
<S> <C>
Costs incurred on contracts $1,434,719
Estimated (losses) (536,858)
-----------
897,861
Less billings to date (833,528)
-----------
$64,333
===========
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Included in the accompanying balance sheet under
the following captions
Costs and estimated earnings in excess of billings
on completed contracts $ 2,000
Costs and estimated earnings in excess of
billings on uncompleted contracts 166,000
Deferred long-term contract costs 77,333
Less deferred revenue (181,000)
----------
Total costs and estimated earnings in excess
of billings on contracts $ 64,333
==========
</TABLE>
Due to uncertainties in the estimation process, it is at least reasonably
possible that completion costs could be further revised in the near term, and
that the change may be material.
NOTE 4 - NOTE PAYABLE - STOCKHOLDER, CAPITAL LEASES AND LINE-OF-CREDIT -
- - - ------------------------------------------------------------------------------
STOCKHOLDER
- - - -----------
On May 12, 1995, Bion entered into an agreement with a shareholder whereby the
Company received 28,572 shares of common stock of Cyclopss Medical Systems,
Inc., valued at $125,000 and a convertible promissory note of Delta Petroleum
Corporation with a face value of $660,000, valued at $1,220,000 all in
exchange for a note payable to the shareholder in the amount of $1,345,000.
All of the of Delta Petroleum Corporation promissory note was converted at a
rate of $3.30 per share for a total of 200,000 shares. In addition, the
Company received 8,042 shares for accrued interest through November 20, 1995.
Effective May 6, 1997, the Company converted the entire note balance of
$2,146,045 including accrued interest of $80,280 into common stock (Note 5).
<TABLE>
<CAPTION>
June 30,
1997
----------
<S> <C>
Notes payable to stockholders, due on demand,
interest ranging from 11% to 12%, payable monthly. $ 82,171
Note payable to individual, interest at 18%, due
May 9, 1998 325,000
----------
407,171
Less current portion (407,171)
----------
$ -
==========
</TABLE>
Capital leases - finance companies; with monthly installments ranging from
$362 to $2,287, including interest from 6.5% to 23.8%, maturing from May 1999
through June 2002; collateralized by equipment with a net book value of
approximately $225,000.
<TABLE>
<CAPTION>
<S> <C>
$ 212,034
Less current portion (62,546)
---------
$149,488
=========
</TABLE>
Future maturities of notes payable and capital leases.
<TABLE>
<CAPTION>
Year Ending Capital Notes
June 30, Lease Payable Total
- - - ------------- --------- --------- ---------
<S> <C> <C> <C>
1998 $ 86,771 $407,171 $493,942
1999 84,085 - 84,085
2000 54,581 - 54,581
2001 26,193 - 26,193
2002 11,893 - 11,893
------- ------- -------
263,523 $407,171 $670,694
======= =======
Less amount representing
interest (51,489)
---------
$212,034
=========
</TABLE>
Line-of-Credit - Stockholder
- - - ------------------------------------------------------------------
Effective October 26, 1996, the Company entered into an agreement with a
stockholder whereby the stockholder would provide a $500,000 credit facility
to the Company. Interest is at 12% per annum and is due monthly. Principal
and interest is due in full on December 31, 1999.
The entire outstanding balance may be converted into units, each consisting of
one share of common stock and one and one half warrants to purchase common
stock at a price of $6 per share for a period commencing at the time of
conversion and expiring December 31, 2001.
In addition, for each $5 loaned to the Company, the Company will issue one and
one half warrants to purchase common stock at a price of $6.00 per share. If
the Company pays the entire balance due on or before December 31, 1998, the
quantity of warrants issued will be reduced by 50%.
As of June 30, 1997, $105,000 was outstanding on the credit facility.
<PAGE>
NOTE 5 - STOCKHOLDERS' DEFICIT
- - - ----------------------------------
Preferred Stock Series B
- - - ---------------------------
Class B Preferred Stock entitles the holder to convert the Preferred stock at
the rate of one Class B Preferred Share for one share of Common Stock of the
Company, subject to adjustment from time to time. The holders of the Class B
Preferred Stock have the option to convert all the outstanding shares of the
stock at any time after December 31, 1994. Class B Preferred Stock holders
are entitled to receive, upon conversion, redemption or liquidation,
cumulative dividends at the per annum rate of $.54 per share on the issued and
outstanding Class B Preferred Stock. The holders of the Series B Convertible
Preferred Stock may require the Company to redeem all of the outstanding
shares of Series B Preferred Stock at any time on or after December 31, 1996.
Series B Preferred Stock holders have liquidation preference to the extent of
their par value over holders of common stock and other series of preferred
stock. As of June 30, 1997, 18,834 shares were issued and outstanding.
Preferred Stock Series A
- - - ---------------------------
In 1992, the Company established a series of 50,000 shares of no par value
preferred stock to have the designation of "Series A Convertible Preferred
Stock". Each share can be converted into 50 shares of common stock at the
option of the holder or automatically converts into common stock on the
earlier of the two years from issuance or upon the effectiveness of a
registration statement, which includes the shares of common stock underlying
conversion. During the year ended June 30, 1996 the Company converted all 90
shares of Series A convertible preferred stock, then outstanding, into 4,500
shares of common stock at $4.50 per share.
<PAGE>
NOTE 5 - STOCKHOLDERS' DEFICIT (CONTINUED)
- - - -----------------------------------------------
Warrants
- - - --------
As of June 30, 1997, the Company has outstanding the following warrants:
<TABLE>
<CAPTION>
Warrant Shares Expiration Date Exercise Price
- - - ----------------- --------- ---------------- ---------------
<S> <C> <C> <C>
Class A 375,000 (2) (1) $ 10.00
Class E-1 4,593,418 (4) (3) 6.00
Class G 25,000 (5) 5.00
Class G-1 25,000 (6) 6.00
Class G-3 50,000 (7) 8.00
Class G-4 25,000 (8) 10.00
Class G-5.1 6,730 (9) 3.00
Class G-5.2 5,550 (10) 3.00
Class G-6 13,837 (11) 6.00
Class G-7 35,000 (12) 4.00
Class G-8 100,000 (13) 6.00
Class H-1 10,000 (14) 5.00
Class H-2 14,500 (15) 3.00
Class K-1 100,000 (16) 6.00
Class K-2 100,000 (17) 8.00
Class K-3 100,000 (18) 10.00
Class L-1 50,000 (19) 6.00
Class L-1.1 50,000 (20) 4.00
Class L-2 50,000 (21) 8.00
NN 550,000 (22) 4.75-20.00
X 1,087,154 (23) 10.00
--------- ---------------
7,366,189 $3.00-20.00
========= ===============
</TABLE>
[FN]
(1) Class A Warrants may be exercised to purchase 375,000 shares of common
stock for a 12 month period beginning April 9, 1998 and ending
April 8, 1999.
(2) Two officers of Biet own 125,000 Class A Warrants each. Additionally,
125,000 Class A Warrants are owned by a shareholder.
(3) Class E-1 Warrants may be exercised to purchase 4,593,418 shares of
common stock for a 12 month period beginning January 1, 2001.
(4) Two officers of Biet own 600,000 Class E-1 warrants each.
Additionally, 2,969,764 Class E-1 warrants are owned by the
majority shareholder.
(5) Class G warrants may be exercised to purchase 25,000 shares of common
stock for a 36 month period beginning June 20, 1996.
(6) Class G-1 warrants may be exercised to purchase 25,000 shares of
common stock for a 6 month period beginning June 1, 1998.
(7) Class G-3 warrants may be exercised to purchase 50,000 shares of
common stock for a 6 month period beginning June 1, 1999.
(8) Class G-4 warrants may be exercised to purchase 25,000 shares of
common stock for a 19 month period beginning March 1, 2002.
(9) Class G5.1 warrants may be exercised to purchase 6,730 shares of
common stock for a 60 month period beginning January 22, 1996.
(10) Class G5.2 warrants may be exercised to purchase 5,550 shares of
common stock for a 60 month period beginning September 13,
1996.
(11) Class G6 warrants may be exercised to purchase 13,837 shares of
common stock for a 60 month period beginning April 21, 1997.
(12) Class G-7 warrants may be exercised to purchase 35,000 shares of
common stock for a 25 month period beginning June 5, 1997.
(13) Class G-8 warrants may be exercised to purchase 100,000 shares of
common stock for a 37 month period beginning June 5, 1997.
(14) Class H-1 warrants may be exercised to purchase 10,000 shares of 60
month period beginning August 21, 1996.
(15) Class H-2 warrants may be exercised to purchase 14,500 shares of
common stock for a 60 month period beginning August 21, 1996.
(16) Class K-1 warrants may be exercised to purchase 100,000 shares of
common stock for a 19 month period beginning March 1, 1998.
(17) Class K-2 warrants may be exercised to purchase 100,000 shares of
common stock for a 19 month period beginning March 1, 2000.
(18) Class K-3 warrants may be exercised to purchase 100,000 shares of
common stock for a 19 month period beginning March 1, 2002.
(19) Class L-1 warrants may be exercised to purchase 50,000 shares of
common stock for a 6 month period beginning June 1, 1998.
(20) Class L1.1 warrants may be exercised to purchase 50,000 shares of
common stock for a 6 month period beginning June 1, 1998.
(21) Class L-2 warrants may be exercised to purchase 50,000 shares of
common stock for a 6 month period beginning June 1, 1999.
(22) Class NN warrants may be exercised to purchase 550,000 shares of
common stock for an 8 to 59 month period beginning February 1, 1997
and ending December 31, 2001.
(23) Class X warrants may be exercised to purchase 1,087,154 shares of
common stock for a 12 month period beginning January 1, 2003.
During the fourth quarter, the Company issued 100,000 warrants to a consultant
and recorded the issuance as an increase to common stock and as consulting
expense for approximately $122,000. Such warrants were valued using an option
pricing model. The warrants have an exercise price of $6 per share and expire
June 30, 2000.
In addition, three officers of the Company will be issued class E-1 warrants
to purchase 120,000 shares of common stock in conjunction with the issuance of
80,000 shares of subscribed stock.
Options
- - - -------
The Company established the Fiscal Year 1994 Incentive Plan (the Plan) in July
1993. Under the Plan, incentive stock options can be granted at prices not
less than 100% of the Fair Market Value of a share of Common Stock on the date
on which the Incentive Stock Option is granted. Options are exercisable within
ten years from the date of grant, subject to early termination as provided in
the Plan.
In 1996, the Company established the 1996 Non-employee Director Stock Plan.
The Plan is available to all non-employee directors and provides that each
non-employee director will receive annually, an option to purchase 5,000
shares of the Company's common stock at an exercise price of 50% of the
average market price of the Company's common stock for the preceding twelve
months. Options issued under this Plan are exercisable for five years from
the date granted.
It is the Company's policy to recognize compensation expense to the extent the
fair market value of the stock exceeds the option exercise price on the date
of grant. To date, the Company has not recognized any compensation expense as
all options have been granted at a price equal to the fair market value of the
stock on the date of grant.
The following table sets forth information regarding incentive stock options
granted under the 1994 and 1996 Plans:
<TABLE>
<CAPTION>
Exercise
Option and Price
Warrants Per Share
----------- ----------
<S> <C> <C>
Balance, June 30, 1995 - $ -
Granted . . . . . . . 10,000 1.72
----------- ----------
Balance, June 30, 1996 10,000 1.72
Granted . . . . . . . 270,000 2.27-6.00
Exercised . . . . . . (89,100) 3.75-5.00
Expired . . . . . . . (90,000) 5.25-6.00
----------- ----------
Balance, June 30, 1997 100,900 $1.72-6.00
=========== ==========
</TABLE>
The Corporation has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation." Accordingly, no compensation cost has been recognized for the
stock option plans.
Had compensation cost for the Company's stock option plan been determined
based on the fair value at the grant date for awards consistent with the
provisions of SFAS No. 123, the Corporation's net earnings and earnings per
share would have been reduced to the pro forma amounts indicated below.
<TABLE>
<CAPTION>
June 30,
------------
1997 1996
------------ ------------
<S> <C> <C>
Net loss - as reported. . . . . . . $(2,979,165) $(1,848,895)
Net loss - pro forma. . . . . . . . (3,172,756) (1,875,624)
Loss per common share - as reported (1.38) (1.16)
Loss per common share - pro forma . (1.48) (1.17)
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants; dividend yield of 0%; expected volatility of 64%
(1997) and 81% (1996); discount rate of 12%; and expected lives of five months
to five years.
Pursuant to employment agreements, several employees have been guaranteed
equity compensation in the form of legended and restricted shares of Biet
common stock in quarterly amounts of $24,060, totaling $175,825 at June 30,
1997. As of June 30, 1997, 4,298 shares have been issued.
NOTE 6 - RELATED PARTY TRANSACTIONS
- - - ----------------------------------------
As of June 30, 1997, there were $135,500 of accrued salaries due to officers
included in accrued payroll.
During the year ended June 30, 1997, the Company converted $240,000 of accrued
salaries to officers into stock subscriptions for 80,000 units, each
consisting of one share of subscribed common stock with one and one half
warrants to purchase common stock for $6.00 per share beginning January 1,
2001 and ending December 31, 2001.
During the year ended June 30, 1997, a shareholder of the Company provided
consulting services to the Company in the amount of $28,000.
For the period ended June 30, 1997, a shareholder of the Company provided
office space to the Company. Rent expense for the year totaled $58,710.
During the year ended June 30, 1997, the Company converted four notes payable
totaling $2,361,905 plus accrued interest and services totaling $174,207 to
four shareholders of the Company into common stock. In conjunction with
these transactions, the Company also issued stock for three properties
contributed by a shareholder totaling $600,000. In addition, the shareholders
received warrants to purchase 937,154 shares of common stock at a price of
$6.00 per share beginning January 1, 2001 and ending December 31, 2001, and
warrants to purchase 1,087,154 shares of common stock for $10.00 per share
beginning January 1, 2003 and ending December 31, 2003.
During the year ending June 30, 1997, the Company entered into an agreement
with a shareholder to provide a $500,000 revolving line-of-credit to the
Company (Note 4).
NOTE 7 - INCOME TAXES
- - - -------------------------
The Company recognizes deferred tax liabilities and assets for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred tax liabilities and
assets are determined based on the difference between the financial statements
and tax basis of assets and liabilities using the enacted tax rates in effect
for the year in which the differences are expected to reverse. The
measurement of deferred tax assets is reduced, if necessary, by the amount of
any tax benefits that, based on available evidence, are not expected to be
realized.
The principal temporary differences that result in a deferred tax asset are
due to the losses generated since inception. The Company has generated a
long-term deferred tax asset of approximately $3,150,000 that is fully
impaired because of a lack of profitable operating history. Accordingly,
there is no net deferred tax asset reflected in the accompanying financial
statements.
The Company is a taxable corporation and has carry-forward operating losses of
approximately $8,640,000 which expire in the following years.
<TABLE>
<CAPTION>
<S> <C>
2004 . . . $ 12,000
2005 . . . 242,000
2006 . . . 239,000
2007 . . . 19,000
2008 . . . 338,000
2009 . . . 224,000
Thereafter 7,556,000
----------
$8,640,000
==========
</TABLE>
NOTE 8 - COMMITMENTS
- - - -----------------------
The Company entered into an agreement with an unrelated company (SGS) to
provide investment banking services from December 1, 1996 through November 30,
1997. In consideration for their services SGS received a warrant to purchase
50,000 share of BIET common stock at $6.00 per share from June 1, 1998 through
December 1, 1998. In addition, if the Company raises $1,000,000, directly or
indirectly through the efforts of SGS by December 31, 1997, then SGS will
receive a warrant to purchase 50,000 shares of BIET common stock at $4.00 per
share from June 1, 1998 through December 1, 1998 and a warrant to purchase
50,000 shares of BIET common stock at $8.00 per share from June 1, 1999
through December 1, 1999.
Employment Agreements
- - - ----------------------
The Company has entered into two employment agreements with officers for a
period commencing July 1, 1993 and ending March 31, 1998. The agreements each
provide for base salaries of $150,000 per year and various benefits, with
annual reviews for increases, bonuses and benefits. Of the base salaries,
$50,000 is accrued annually and payable when the Company has sufficient cash
flow from future operations.
The Company has entered into an employment agreement with an officer for a
period commencing January 1, 1995 and ending December 31, 1997. The agreement
provides for a base salary of $120,000 per year and various benefits, with
annual reviews for increases, bonuses and benefits. Of this base salary,
$30,000 is accrued annually and also payable when the Company has sufficient
cash flow from future operations.
The Company entered into an agreement with a half time employee whereby the
employee was issued warrants to purchase 100,000 shares of BIET Common stock
for $6.00 per share beginning March 1, 1998 through October 1, 1999 which will
be fully vested if employment continues through October 1, 1997, warrants to
purchase 100,000 shares of BIET common stock for $8.00 per share from March 1,
2000 through October 1, 2001 which will be fully vested if employment
continues through October 1, 1998 and warrants to purchase 100,000 shares of
BIET common stock for $10.00 from March 1, 2002 through October 1, 2003 which
will be fully vested if employment continues through October 1, 1999.
The Company entered into an agreement with an employee whereby the employee
was issued warrants to purchase 200,000 shares of BIET Common stock for $6.00
to $15.00 per share which vest 25% at the date of employment and 25% at the
end of each of the first through third full year of employment, exercisable
from the date of vesting to December 31, 2001. In addition, the employee has
also been granted warrants to purchase 50,000 shares of BIET common stock for
$15.00 per share, vesting 33% at the end of each of the first three full years
of employment through December 31, 2001 and warrants to purchase 150,000
shares of BIET common stock for $20.00 per share, vesting 33% at the end of
each of the first three full years of employment through December 31, 2001.
Effective September 1, 1997, the employee resigned and all such warrants
outstanding were canceled.
NOTE 9 - SUBSEQUENT EVENTS
- - - ------------------------------
From July through September 25, 1997, the Company sold 95,349 shares of common
stock for $225,221.
In July 1997, the Company 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.
In July 1997, the Company entered into a contract with a financial advisor and
consultant. In the event that one or more Transactions, excluding debt
financing, are consummated from July 1, 1997 through June 30, 1998 then the
advisor will be compensated as follows:
6% of funds raised up to $1,000,000
5% of funds raised from $1,000,001 to $2,000,000
4% of funds raised from $2,000,001 to $3,000,000
3% of funds raised from $3,000,001 to $4,000,000
2% of funds raised above $4,000,001
The above fee will be reduced by related fees and commissions, but shall be no
less than %. If the transactions are not in the form of cash, BIET may pay
the advisors fees in securities of BIET.
For transactions involving debt financing, the advisor will be compensated
with a fee equal to % of the aggregate consideration.
In September 1997, the Company made additional awards to all employees under
the 1994 Incentive Stock Option Plan. The Company granted the following
options to employees:
<TABLE>
<CAPTION>
Exercise Price Per
Options Share
- - - ------- -------------------
<S> <C>
27,762 $ 4.00
27,756 6.00
27,754 8.00
10,000 10.00
10,000 12.50
10,000 15.00
- - - ------- -------------------
113,272 $ 4.00-15.00
======= ===================
</TABLE>
The options vest one-third on the employees first anniversary date or
September 15, 1997 whichever occurs later. The remaining two-thirds vest
equally over the remaining 24 months from the later of September 15, 1997 or
the employees first anniversary date.
Additionally, the Company also issued common stock and warrants to purchase
common stock of the Company to an officer. The Company issued 10,000 shares
of restricted and legended common stock and the following warrants to purchase
restricted and legended common stock:
<TABLE>
<CAPTION>
Exercise Price Per
Warrants Share Fully Exercisable On
- - - ----------------- ------------------ --------------------
<S> <C> <C>
25,000 $ 4.00 September 15, 1997
25,000 6.00 September 15, 1997
20,000 8.00 September 15, 1997
20,000 10.00 September 15, 1998
20,000 12.50 September 15, 1999
20,000 15.00 September 15, 1999
- - - ---------------- ------------------
130,000 $ 4.00-15.00
================ ==================
</TABLE>
All warrants granted above expire on December 31, 2001.
NOTE 10 - FAIR VALUE OF FINANCIAL INSTRUMENTS
- - - ---------------------------------------------
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate
that value. Fair value estimates are made at a specific point in time for the
Company's financial instruments; they are subjective in nature and involve
uncertainties, matters of significant judgment and, therefore, cannot be
determined with precision. Fair value estimates do not reflect the total
value of the Company as a going concern.
Cash and Cash Equivalents, Accounts Payable and Accrued Expenses
- - - ------------------------------------------------------------------------
The carrying value approximates fair value due to their liquid or short-term
nature.
Notes Payable - Stockholders, Capital Lease Obligation and Line-of-Credit -
- - - ------------------------------------------------------------------------------
Stockholders
- - - ------------
Rates currently available to the Company for debt and capital lease
obligations with similar terms and remaining maturities are used to estimate
the fair value of existing debt. Carrying values approximate fair value as
the stated or implicit rates of these instruments approximate rates available
to the Company for instruments with similar terms.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 9,232
<SECURITIES> 0
<RECEIVABLES> 102,963
<ALLOWANCES> 30,000
<INVENTORY> 0
<CURRENT-ASSETS> 850,195
<PP&E> 284,222
<DEPRECIATION> 39,398
<TOTAL-ASSETS> 1,222,706
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
95,482
<COMMON> 7,983,274
<OTHER-SE> (8,265,360)
<TOTAL-LIABILITY-AND-EQUITY> 1,222,706
<SALES> 0
<TOTAL-REVENUES> 133,925
<CGS> 439,462
<TOTAL-COSTS> 439,462
<OTHER-EXPENSES> 2,499,205
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 286,387
<INCOME-PRETAX> (2,979,165)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,979,165)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,979,165)
<EPS-PRIMARY> (1.38)
<EPS-DILUTED> 0
</TABLE>
