SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD
ENDED March 31, 1997 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 OR THE TRANSITION PERIOD
FROM __________ TO __________
Commission file number 0-19333
Bion Environmental Technologies, Inc.
(Exact name of registrant as specified in its charter)
Colorado 84-1176672
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
555 17th Street, Suite 3310
Denver, Colorado 80202
(Address of principal (Zip Code)
executive offices)
(303) 294-0750
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No___
The number of shares outstanding of registrant's classes of
common equity, as of April 30, 1997:
Common Stock, No Par Value, 2,062,033
Series B Convertible Preferred Stock, $.001
Par Value, 18,834 shares
Bion Environmental Technologies, Inc. Form 10-QSB
March 31, 1997
INDEX
PART I FINANCIAL INFORMATION PAGE NO.
ITEM 1 FINANCIAL STATEMENTS
Consolidated Balance Sheets:
June 30, 1996 and
March 31, 1997..................... F2
Consolidated Statements of Operations:
For the Nine Month Periods Ended
March 31, 1996 and
March 31, 1997..................... F3
Consolidated Statements of Operations:
For the Three Month Periods Ended
March 31, 1996 and
March 31, 1997..................... F4
Consolidated Statements of Cash Flows:
For the Nine Month Periods Ended
March 31, 1996 and
March 31, 1997..................... F5
Consolidated Statement of Changes in
Stockholders' Equity.................... F6-F7
Notes to Consolidated Financial Statements F8-F10
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATION........................ 3
PART II OTHER INFORMATION
ITEMS 1-6 ........................................ 14
FINANCIAL INFORMATION
PART I
ITEM 1. FINANCIAL STATEMENTS
BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
March 31, June 30,
1997 1996
(Unaudited) (Audited)
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 11,025 $ 118,612
Contract receivables 47,855 22,070
Work in progress (net of allowance
of $20,000) 229,750 219,686
Prepaid expenses 10,725 2,128
Total current assets 299,355 362,496
Property and equipment, net 231,950 66,216
Other assets
Patents, net 38,722 40,778
Deferred long term contract costs 82,433 82,433
Other 10,572 4,387
Total other assets 131,727 127,598
Total assets $ 663,032 $ 556,310
Liabilities and Stockholder Equity
Current liabilities
Accounts payable and accrued liabilities $ 428,410 $ 228,712
Accounts payable - related party 0 23,351
Notes payable - stockholders 176,041 96,050
Capital lease obligations 56,209 18,482
Accrued payroll - officers 107,166 206,667
Total current liabilities 767,826 573,262
Long-term liabilities
Notes payable - stockholders 2,112,035 2,007,035
Capital lease obligation 141,209 43,047
Deferred contract revenue 206,500 206,500
Total liabilities 3,227,570 2,829,844
Commitments and contingency
Stockholders' (deficit)
Preferred stock, $.001 par value 10,000,000
authorized, 18,834 series B (March 31, 1997
and June 30, 1996) shares issued and
outstanding 95,482 95,482
Common stock, no par value, 100,000,000
shares authorized, 2,031,033 (March 31,
1997) and 1,683,777 (June 30, 1996) shares
issued and outstanding 4,693,336 3,485,270
Common stock subscribed 346,718 49,538
Accumulated deficit (7,700,074) (5,903,824)
Total stockholders (deficit) (2,564,538) (2,273,534)
Total liabilities and stockholders
(deficit) $ 663,032 $ 556,310
</TABLE>
See Notes to Consolidated Financial Statements
BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Nine Months Ended
March 31
1997 1996
(Unaudited) (Unaudited)
<S> <C> <C>
Contract revenues $ 99,646 $ 97,735
Contract costs 396,169 96,096
Gross profit (loss) (296,523) 1,639
General and administrative expenses 1,267,632 1,209,005
Loss from operations (1,564,155) (1,207,366)
Other income (expense)
Interest income 107,200 1,324
Interest expense (212,811) (146,357)
Research and development (118,855) (58,760)
Gain (loss) on marketable equity
securities 0 137,553
Net (loss) $(1,788,621) $(1,273,606)
(Loss) per weighted average share
of common stock $ (0.97) $ ( 0.81)
Weighted common shares outstanding 1,836,763 1,575,016
</TABLE>
See notes to financial statements.
BION ENVIRONEMTNAL TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Three Months Ended
March 31
1997 1996
(Unaudited) (Unaudited)
<S> <C> <C>
Contract revenues $ 37,839 $ 12,747
Contract costs 110,467 30,964
Gross (loss) (72,628) (18,217)
General and administrative expenses 471,100 462,633
Loss from operations (543,728) (480,850)
Other income (expense)
Interest income 6 1,303
Interest expense (71,477) (52,421)
Research and development (51,968) (20,942)
Gain (loss) on marketable
equity securities 0 (35,675)
Net (loss) $(667,167) $(588,585)
(Loss) per weighted average share of
common stock $ (0.34) $ (0.36)
Weighted common shares outstanding 1,972,895 1,648,709
</TABLE>
See Notes to Consolidated Financial Statements
BION ENVIRONEMTNAL TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
1997 1996
(Unaudited) (Unaudited)
<S> <C> <C>
Cash flows from operating activities
Net (loss) $(1,788,621) $(1,273,606)
Adjustments to reconcile net loss to
net cash provided/used by
operating activities -
Depreciation and amortization 22,785 2,515
(Increase) decrease in valuation allowance 0 (137,553)
Issuance of stock for services
and interest 471,228 123,054
Change in assets and liabilities -
Contract receivables (35,849) 75,298
Prepaid expenses (14,782) (1,021)
Accounts payable and accrued liabilities 168,718 (52,874)
Accrued payroll - officers (99,501) 21,363
Net cash (used in) operating activities (1,276,022) (1,242,824)
Cash flows from investing activities
Purchase of capital equipment (20,662) 0
Investments in patents 0 (1,595)
Sale of marketable equity securities 0 1,113,673
Net cash (used in) provided by investing
activities (20,662) 1,112,078
Cash flows from financing activities
Proceeds from shareholder notes - net 445,991 50,921
Proceeds from sale of stock 741,768 366,730
Payments on capital lease obligations (29,912) 0
Proceeds from the sale of warrants 31,250 0
Net cash provided by financing activities 1,189,097 417,651
Net (decrease) increase in cash and cash
equivalents (107,587) 286,905
Cash and cash equivalents at beginning of period 118,612 3,801
Cash and cash equivalents at end of period $ 11,025 $ 290,706
</TABLE>
Footnote:
Supplemental Cash Flow Information
Cash Paid for Interest: $100,522 $40,682
Supplemental disclosure of non-cash investing and financing
activities
The Company entered into capital leases for equipment
in the amount of $165,801 for the nine months ended
March 31, 1997.
The Company declared accrued dividends of $7,629 for
the Series "B" preferred stock for the nine months
ended March 31, 1997.
The Company converted $261,000 of shareholders' notes
payable in to Common Stock during the nine months ended
March 31, 1997.
See Notes to Consolidated Financial Statements
BION ENVIRONMENTAL TECHNOLOGIES, INC.
AND SUBSIDIARIES
Consolidated Statement of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
Series "B"
Preferred Stock Common Stock
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Balances at June 30, 1996 18,834 $ 95,482 1,683,777 $3,485,270
Common stock subscriptions
for services -- -- -- --
Warrants issued for cash -- -- -- $31,250
Issuance of common stock for cash -- -- 56,183 $151,216
Issuance of common stock
for services -- -- 7,846 $23,540
Dividends declared, preferred
stock Series B -- -- -- --
Net (loss) for the period ended
September 30, 1996 -- -- -- --
Balances at September 30, 1996 18,834 $95,482 1,747,806 $3,691,276
Common stock subscriptions
for services -- -- -- --
Issuance of common stock for cash -- -- 41,287 $153,475
Issuance of common stock
for services -- -- 734 $2,200
Issuance of common stock
for reduction of debt, interest
and other -- -- 113,542 $334,785
Dividends declared, preferred
stock Series B -- -- -- --
Net (loss) for the period ended
December 31, 1996 -- -- -- --
Balances at December 31, 1996 18,834 $95,482 1,903,369 $4,181,736
Common stock subscriptions
for services -- -- -- --
Conversion of common stock
subscriptions for services -- -- 1,700 $7,500
Issuance of common stock for
cash -- -- 109,207 $437,077
Issuance of common stock for
services -- -- 16,757 $67,023
Dividends declared, preferred
stock Series B -- -- -- --
Net (loss) for the period ended
March 31, 1997 -- -- -- --
Balances at March 31, 1997 18,834 $95,482 2,031,033 $4,693,336
</TABLE>
Table continued below
<TABLE>
<CAPTION>
Common
Stock Accumulated
Subscribed (Deficit) Total
<S> <C> <C> <C>
Balances at June 30, 1996 $ 49,538 $(5,903,824) $(2,273,534)
Common stock subscriptions
for services 20,935 -- 20,935
Warrants issued for cash -- -- 31,250
Issuance of common stock for cash -- -- 151,216
Issuance of common stock
for services -- -- 23,540
Dividends declared, preferred
stock Series B -- (2,544) (2,544)
Net (loss) for the period ended
September 30, 1996 -- (415,423) (415,423)
Balance at September 30, 1996 70,473 (6,321,791) (2,464,560)
Common stock subscriptions
for services 259,685 -- 259,685
Issuance of common stock for cash -- -- 153,475
Issuance of common stock
for services -- -- 2,200
Issuance of common sotkc for
reduction of debt, interest
and other -- -- 334,785
Dividends declared, preferred
stock Series B -- (2,541) (2,541)
Net (loss) for the period ended
December 31, 1996 -- (706,032) (706,032)
Balances at December 31, 1996 330,158 (7,030,364) (2,422,988)
Common stock subscriptions
for services 24,060 -- 24,060
Conversion of common stock
subscriptions for services (7,500) -- --
Issuance of common stock for
cash -- -- 437,077
Issuance of common stock for
services -- -- 67,023
Dividends declared, preferred
stock Series B -- (2,543) (2,543)
Net (loss) for the period ended
March 31, 1997 -- (667,167) (667,167)
Balances at March 31, 1997 $346,718 $(7,700,074) $(2,564,538)
</TABLE>
See Notes to Consolidated Financial Statements
BION ENVIRONMENTAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Summary of Accounting Policies
The summary of the registrant's significant accounting policies is
incorporated by reference to the Company's annual report on Form 10-
KSB/A at June 30, 1996.
The accompanying unaudited condensed financial statements and
disclosures reflect all adjustments (all of which are normal
recurring accruals) in the ordinary course of business which in the
opinion of management are necessary for a fair presentation of the
results of operations, financial positions, and cash flow. The
results of operations for the periods indicated are not necessarily
indicative of the results for a full year.
Note 2 - Continued Operations
The accompanying financial statements have been prepared on a going
concern basis which contemplates the realization of assets and
liquidation of liabilities in the ordinary course of business. The
Company has not yet begun earning significant revenue from its
planned principal operations. Consequently, as of March 31, 1997,
the Company has incurred accumulated losses totaling approximately
$7,700,000, resulting in a accumulated stockholders' deficit of
approximately $2,600,000. Cash flows from current operations are
not sufficient to meet the obligations of the Company. Management
plans include continuing efforts to obtain additional capital to
fund operations until contract sales along with sales of BionSoilO
are sufficient to fund operations. There can be no assurance that
the Company will be able to successfully attain profitable
operations or raise sufficient capital.
Note 3 - Cost and Estimated Earnings on Uncompleted Contracts
The Company's costs and estimated earnings on uncompleted treatment
system contracts consist of the following:
<TABLE>
<CAPTION>
(Unaudited)
March 31, June 30,
1997 1996
<S> <C> <C>
Costs incurred on contracts $1,404,653 $1,023,774
Estimated (losses) (497,844) (201,321)
906,809 822,453
Less billings to date (790,778) (706,834)
$ 116,031 $ 115,619
</TABLE>
Note 4 - Stockholders' Deficit
The Company has various classes of warrants, please refer to the
Company's Form 10-KSB/A dated June 30, 1996 for details.
Note 5 - Investment Banking Agreement
Effective December 1, 1996, the Company entered into an agreement
(the "Agreement") with Global Financial Group, Inc. ("GFG")
whereby the Company has engaged GFG to provide investment banking
services. (See 8-K dated December 1, 1996.)
Effective March 10, 1997 the Company amended the agreement as
follows:
A. Term of the Agreement. The term of the Agreement is hereby
amended to be from December 1, 1996 to November 30, 1997,
instead of from December 1, 1996 to November 30, 1998 as was
previously stated in the introductory paragraph of the
Agreement.
B. Section 4. Compensation, paragraph b) is hereby amended to read
as follows:
b) Additionally, if, directly or indirectly through the
efforts of GFG, Bion Environmental Technologies, Inc. ("BIET")
raises not less than $1,500,000, or other amount satisfactory
to BIET by June 30, 1997, GFG shall have earned the following:
1) A warrant to purchase 100,000 shares of BIET common stock
at $4.00 per share for a period of six months commencing
June 1, 1998 and expiring December 1, 1998;
2) A warrant to purchase 250,000 shares of BIET common stock
at $8.00 per share for a period six months commencing
June 1, 1999 and expiring December 1, 1999;
3) If at any time prior to the exercise of these warrants
BIET undertakes to register any shares of its common
stock pursuant to a form of registration statement which
would allow registration of the shares underlying the
exercise of these warrants, then BIET shall include the
underlying shares in such registration statement at
BIET's sole cost; PROVIDED, HOWEVER, in the event of a
registration statement involving an underwriter, such
underwriter shall have the right, in its sole discretion,
to impose restrictions on the resale of BIET's securities
issued pursuant hereto and/or eliminate this registration
right from the underwritten registration statement in its
entirety. There is no assurance that any registration
statement including the warrants or the shares underlying
the warrants will ever be filed or, if filed, will become
effective.
Note 6 - Investment Banking Agreement
Effective December 1, 1996, the Company entered into an agreement
(the "Agreement") with Sauceda & Granville Securities, Inc. ("SGS")
whereby Company has engaged SGS to provide investment banking
services from December 1, 1996 to November 30, 1997. Under the
Agreement SGS has agreed to provide Company with advice; to consult
with Company concerning business and financial planning, corporate
organization and structure, financial matters in connection with
the operation of the business of Company, private and public equity
and debt financing, acquisitions, mergers and other similar
business combinations, Company's relations with its securities
holders, preparation and distribution of periodic reports, and
shall periodically provide to Company an analysis of its financial
statements. Company will provide SGS with the following
compensation for the provision of these services: a warrant to
purchase 50,000 shares of Company's common stock at $6.00 per share
exercisable for a six months period commencing June 1, 1998.
Additionally, if, directly or indirectly through the efforts of
SGS, Company raises not less than $1,000,000, or other amount
satisfactory to Company by June 30, 1997, SGS shall have earned a
warrant to purchase 50,000 shares of Company's common stock at
$4.00 per share exercisable for a six months period commencing June
1, 1998, and a warrant to purchase 50,000 shares of Company's
common stock at $8.00 per share exercisable for a six months period
commencing June 1, 1999 and expiring December 1, 1999. If at any
time prior to the exercise of these warrants Company undertakes to
register any shares of its common stock pursuant to a form of
registration statement which would allow registration of the shares
underlying the exercise of these warrants, then Company shall
include the underlying shares in such registration statement at
Company's sole cost; PROVIDED, HOWEVER, in the event of a
registration statement involving an underwriter, such underwriter
shall have the right, in its sole discretion, to impose
restrictions on the resale of Company's securities issued pursuant
hereto and/or eliminate this registration right from the
underwritten registration statement in its entirety.
Note 7 -Subsequent Event
On April 8, 1997 the Company issued 5,000 shares of its free
trading (non-restricted) stock to an employee, as a bonus under the
Fiscal Year 1994 Incentive Compensation Plan.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The Company is a service provider to customers with waste and
wastewater treatment requirements and is engaged in the business of
designing, marketing, and monitoring the installation and operation
of proprietary systems for the biological treatment of wastes and
wastewater produced from agricultural, food processing, and similar
sources. Through the application of the Company's patented
technology, waste produced in the livestock industry is transformed
into a salable, organic, nutrient-rich humus material, BionSoil.
The Company currently has sixteen systems in operation treating
swine, dairy, juice processing, and sugar plantation waste streams
in Florida, New York, Maryland, North Carolina, and Washington. The
Company is in the process of designing or monitoring the
installation of seventeen projects, raising capital for operations
and future growth, reviewing strategic partners for various aspects
of the business, continuing a research and development effort on
both systems applications and byproducts, and strengthening its
patent coverage.
Liquidity and Capital Resources
The Company's current ratio as of March 31, 1997 was .39 : 1 as
compared to .63 : 1 as of June 30, 1996. Cash as of March 31, 1997
decreased to $11,025 as compared to $118,612 as of June 30, 1996.
The Company has entered into capital leases for BionSoil processing
equipment in the amount of $165,801 during the 9 month period ended
March 31, 1997.
During the nine months ended March 31, 1997 the Company sold
166,677 shares of restricted and legended Common Stock for net cash
in the aggregate of $401,768, received $340,000 as the proceeds
from the exercise of options to purchase 80,000 shares of its
Common Stock, issued 6,435 shares of restricted and legended stock
valued at $12,870 as payment of a note (principal and interest),
and issued 22,524 shares of restricted and legended Common Stock
valued at $82,250 to a shareholder in exchange for rent. The
Company also issued 5,111 shares of restricted and legended Common
Stock valued at $20,403 to various individuals as payment of debt
or services.
Effective January 8, 1997 the Company (along with its wholly-owned
subsidiary BionSoil, Inc., "BSI") entered into a financing
agreement (the "Agreement") with LoTayLingKyur, Inc. ("LTLK")
whereby LTLK advanced the sum of $73,870 to Company on the
following terms and conditions: as security, LTLK took title to
7,387 cubic yards of raw unscreened BionSoil, BSI shall have the
right to acquire the collateral, BionSoil, in whole or in part by
payment to LTLK the sum of $11.50 per cubic yard through June 30,
1997, thereafter the price shall increase by $.20 per cubic yard
per month, BSI shall repurchase all of the collateral BionSoil not
previously repurchased at a price of $12.70 per cubic yard by
December 31, 1997. (See Form 8-K dated January 2, 1997.) On March
26, 1997 LTLK advanced $20,000 to the Company as a short term loan
at 1.0% per month.
Effective December 1, 1996 the Company converted a note, accrued
interest and consulting fees in the amount of $319,527 into units
(the "Units") consisting of one share of the Company's common stock
plus one class K Warrant (the "Warrants")(each Warrant authorizing
the holder to purchase one share of Company's restricted and
legended common stock for a price of $4.50 per share for a period
commencing January 1, 2001 and expiring December 31, 2001, which
warrants were subsequently converted to Class E-1 Warrants pursuant
to the offer described in the Form 8-K dated December 1, 1996.
Effective December 1, 1996 Jon Northrop, Company's CEO, Jere
Northrop, Company's President and COO, and M. Duane Stutzman,
Company's Treasurer and CFO, signed Investor Representation and
Subscription Agreements ("Agreements") to purchase 33,334, 33,334,
and 13,334 shares of the restricted and legended common stock of
the Company plus 50,000, 50,000, and 20,000 E-1 Warrants to
purchase additional shares of the Company's common stock at a per
share price of $6.00 for a price of $100,000, $100,000 and $40,000
respectively. Further, each of the officers have notified the
Company that payment for the subscribed stock would be made by
cancellation of salary amounts owed to the officers by the Company
in the amounts of $100,000, $100,000, and $40,000 respectively,
such cancellation and payment to occur upon issuance of the
restricted and legended common stock. (See Form 8-K dated December
1, 1996.)
On October 26, 1996, the Company secured a $500,000 line-of-credit
from a shareholder, interest at 12% per annum payable monthly, with
all outstanding principal and interest due on December 31, 1999.
(See Form 8-K dated December 1, 1996.) As of March 31, 1997 the
Company has drawn $105,000 on this note payable.
On August 20, 1996, the Company issued warrants to purchase 14,500
shares of common stock at a price of $3.00 per share and 10,000
shares of common stock at a price of $5.00 per share for $30,000.
The warrants are effective beginning August 21, 1996 for a 60 month
period ending August 21, 2001.
On August 30, 1996, the Company issued warrants to employees under
the Fiscal Year 1994 Incentive Compensation Plan, to purchase
60,000 shares of common stock at $5.00 per share. The warrants are
effective for a 60 month period beginning September 1, 1996 through
September 1, 2001. On September 25, 1996, the Company issued
warrants to an employee under the Fiscal Year 1994 Incentive
Compensation Plan, to purchase 50,000 shares of common stock at
$3.75 per share and 50,000 shares of common stock at $5.25 per
share. The warrants are effective for the periods September 25,
1996 through January 1, 1997 and September 25, 1996 through April
1, 1997 (subsequently extended to June 30, 1997), respectively. On
December 31, 1996 the Company issued additional warrants under the
plan to purchase 50,000 shares of common stock at $6.25 per share.
The warrants are effective for the period December 31, 1996 through
May 30, 1997.
The Company has incurred losses since inception approximating
$7,700,000 and is currently experiencing liquidity problems.
Continued losses without the infusion of additional capital raise
doubt about its ability to continue as a going concern. Management
plans include continuing efforts to obtain additional capital to
fund operations until such time, if ever, as contract sales and the
sale of BionSoil are sufficient to fund operations.
The Company is currently negotiating with independent third parties
to obtain the necessary additional funding for the Company. No
assumption can be made that the Company will be able to
successfully attain profitable operations and/or raise sufficient
capital to sustain operations.
Results of Operations
Comparison of the Nine Months Ended March 31, 1997 with
Nine Months Ended March 31, 1996
Revenue in the nine months ended March 31, 1997 was $99,646
compared to $97,735 for the corresponding six month period in 1996,
an increase of $1,911. Contract costs were higher by $300,000 in
the 1997 nine month period due to startup expenses for BionSoil
processing sites in New York and Florida, $191,000, and increased
design, permitting, and construction overview on Bion NMS Systems,
$90,000. Included in the processing sites startup expenses are
facilities (rent, utilities, maintenance, etc.), equipment, and
additional personnel.
General and administrative expenses were higher by $58,627 due to
increased employee compensation.
The Company recorded $105,000 in interest income from the sale of
Delta stock associated with the Settlement Agreement and General
Release on the UFG note (see 10-KSB/A dated 6/30/96). This is the
final amount to be collected on the UFG note. The total amount
collected is $191,581 in excess of the original principal of the
note. The Company also recorded $212,811 in interest expense on its
notes to shareholders and capital equipment leases, and $118,855 in
research and development costs. As a result of the above, the
Company recorded a net loss of $1,788,621 in the nine month period
ended March 31, 1997, compared to a net loss of $1,273,606 for the
nine month period ended March 31, 1996.
Comparison of the Three Months Ended March 31, 1997 with
Three Months Ended March 31, 1996
Revenue in the three months ended March 31, 1997 was $37,839
compared to $12,747 for the corresponding three month period in
1996, an increase of $25,092. Contract costs were higher by $79,503
in the three month period. Startup expenses for BionSoil processing
sites in New York and Florida accounted for $79,000 of the
increase. The above resulted in a gross loss for the period ended
March 31, 1997 of $72,628 as compared to a gross loss of $18,217
for the same three month period in 1996.
Included in the higher contract costs are startup expenses for the
BionSoil processing sites in New York and Florida for facilities
(rent, utilities, maintenance, etc.), equipment, and additional
personnel.
General and administrative expenses were higher by $8,467 in the
period due to increased employee compensation.
The Company recorded $71,477 in interest expense on its notes to
shareholders and capital equipment leases and $51,968 in research
and development costs. As a result of the above, the Company
recorded a net loss of $667,167 compared to a net loss of $588,585
for the three months ended March 31, 1996.
General Discussion of Current and Proposed Operations
As shown in the financials in this Form 10-QSB, over $5,135,000 of
equity has been invested in the Registrant through the close of the
fiscal quarter ended March 31, 1997. These financial statements
also show that on March 31, 1997 the Company had a negative net
worth of $2,564,538, cumulative losses of $7,700,074, limited
current revenues and substantial current operating losses. However,
additional information is necessary to evaluate the Company and its
progress relative to the business it is pursuing and the associated
value the Company has developed during the last several years.
The following section of this 10-QSB is presented by management to
give the reader a better understanding of the development of the
business of the Company to date, and its plans for growth in the
future.
Business Development
The Company's mission is to provide services, systems and products
which solve environmental problems and recycle wastes into high
value horticultural products which produce superior plant growth
performance. Based on this, the Company's business is focused on
the application of its patented proprietary technology in two
complementary business areas; first, Bion NMSO 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 use the material 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 March 31, 1997 the Company has, in the aggregate, sold,
installed, or had under construction, systems in four distinct
regions: North Carolina, New York, Florida, and the Pacific
Northwest. The sales in these regions establish multiple
applications for the Company's technology including:
(a) Three dairy farm wastewater treatment and nutrient reduction
systems: which treat the wastewater discharges from dairy farms
to remove phosphorus, nitrogen and other nutrients and create
water suitable for discharge or reuse.
* Florida
* New York
* Washington
(b) Twenty one dairy farm Bion NMS systems: which solve the
environmental problems associated with dairy farms and also
create BionSoil.
* New York and the northeast, including Maryland
* North Carolina
* Florida
* Washington and the Northwest, including Oregon
(c) One feedlot Bion NMS system: which solves the environmental
problems associated with feedlots and also creates BionSoil.
* New York
(d) Four hog farm Bion NMS systems: which solve the environmental
problems associated with hog farms and also create BionSoil:
* North Carolina
(e) One combination food processing waste and manure waste
treatment system: a system which treats nutrients and solid
wastes from food processing plants and animal confinement areas.
* New York
(f) Three fruit processing wastewater treatment systems: which
treat the wastewater discharges from fruit processing plants to
remove solids, nutrients and other contaminants to create water
suitable for discharge or reuse:
* Florida, citrus juice plants
* New York, cherry processing plant
(g) Three storm water run-off, surface water run-off treatment
systems: which treat storm water run off from agricultural
installations to remove nutrients and other contaminants to
create water suitable for discharge or reuse:
* Florida, run-off from dairy farm pastures, industrial
installations and sugar cane plantations
(h) One feasibility study for the installation of a Bion system
for the treatment of all wastewater generated in a small
mobile home community: * New York
Geographic Expansion
In designing, permitting, installing and operating these systems,
the Company has established credibility with federal, state, and
local regulators and environmental and agricultural professionals.
The Company estimates that the cost associated with staffing,
servicing, and marketing its systems in new geographic regions,
including initial sales calls, design, regulatory approvals,
installation and operation through the cash-flow break-even point,
is not less than $500,000 per region, and may exceed $1,000,000.
Based on experience to date in the four regions where system sales
and installation activity is ongoing, the Company estimates that
approximately $3.5 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.
The second full time employee (required to provide design,
engineering, construction and system operation expertise) was
transferred to North Carolina in February 1995. Adverse weather
conditions during the construction period resulted in a longer
construction time than anticipated, however, system start-up was
achieved in June of 1995, and the system has been in continuous
operation since. Based on this investment of time and effort and
the successful operation of the system, the Company is expanding
its marketing and sales efforts in North Carolina. Currently, the
Company has submitted proposals to a number of potential customers,
is engaged in discussions with several of these, and has signed
agreements for six additional system installations. Management
estimates that, to date, in excess of $400,000 has been devoted to
the effort to support this first hog system in North Carolina and,
therefore, to support the marketing of additional systems. Current
projections are that it will require an additional twelve to
eighteen months before sufficient cash flow will be generated from
system and BionSoil sales in North Carolina to offset ongoing
expenses.
The Company anticipates continuing its expansion into new areas in
the future, and this expansion will require similar additional
capital resources which, when expended, will also be expensed and
not shown as balance sheet assets.
Technology Expansion
The Company has four issued U.S. Patents: a Bioconversion Reactor
and System, an Animal Waste Bioconversion System, a Bioconverted
Nutrient Rich Humus, and a Phosphorous Treatment Process. The
Company also has an issued Canadian Patent for an Aqueous Stream
Treatment Process, and has received formal Notice of Allowance from
the U.S. Patent Office for its Storm Water Remediatory
Bioconversion System application. These patents provide broad
coverage of the fundamental technology that underlies the Company's
systems and processes. Additional patent filings will occur as
further applications are developed.
The Company estimates that a large portion of the net loss through
fiscal year 1995 (then shown on the financial statements as $4.0
million) was actually expended on research and the development of
the technology and construction of prototype systems that are the
basis of the Company's planned future expansion. All of these
costs have been expensed by the Company.
Just as there are additional expenses associated with geographical
expansion, there also are substantial additional expenses
associated with the adaptation of existing technology for use in
regions where climate, soil, and regulatory conditions are
different from those experienced in other already established
installations. Further, the Company anticipates additional
expenditures in the near future associated with expansions of the
technology into the cattle feedlot and poultry raising businesses
where adaptation of the technology is necessary to treat waste with
both different characteristics and different collection
technologies than for existing dairy or swine waste systems. The
majority of such expenses (which are investments in the Company's
future) will not show as balance sheet assets despite the fact that
very real long term technological value is being developed.
Financial Discussion
The Company receives two distinct revenue streams from Bion NMS
systems: 1) initial fees for system design, permitting, startup and
initial operation (and, for selected systems, periodic management
or technology license fees), and 2) after the initial start-up
period for a system (approximately 12 to 15 months after the
agreement is signed), an on-going revenue stream to the Company
from the sale of BionSoil and BionSoil-based products produced from
the systems.
BionSoil Economics
The Company 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 produce 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 April 15, 1997 the Company has eleven systems containing
5,530 BionAnimals that are on line and producing BionSoil.
Further, the Company has signed agreements covering fifteen
additional systems containing 10,800 BionAnimals that are not yet
in production. These systems are in various stages from
preliminary design through construction. Of these, six systems
(representing 5,800 BionAnimals) are covered by agreements signed
within the quarter ended March 31, 1997. As a result, the Company
has twenty six systems containing 16,530 total BionAnimals in
production or covered by signed agreements as of April 15, 1997.
The Company estimates that these BionAnimals should produce
approximately 165,000 cubic yards of BionSoil per year when all of
the systems are on line, which is currently expected to occur
within the next nine months.
As systems are brought on line and BionSoil is harvested, BionSoil,
Inc. (the Company's other wholly-owned subsidiary) will purchase
(for cash) the harvested BionSoil from Bion Technologies, Inc to
process it into final products for sale to customers.
Subsequently, each farm is paid a percentage of the wholesale price
that Bion Technologies, Inc. has received for the BionSoil. These
payments are expected to represent an important part of the
strategy developed by the Company for the successful marketing of
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, and
the farm should receive a revenue stream from the cash payments
made by the Company to the farm.
While sales of Bion NMS systems have been sporadic over the last
four years, and significant quantities of BionSoil (resulting in
significant payments to the farms) have only recently been
available, the Company has clearly demonstrated the technology with
eleven systems in successful operation, five of which have been on
line for more than two years. Additionally, through both Company
performed and independent tests, BionSoil has been shown to clearly
enhance plant growth performance. Based on these results and
analysis of the Company's potential markets, a series of aggressive
planning targets for system sales and installations have been
established. These targets which, if actually achieved would
result in a major expansion of the Company, are based on historical
sales during the past few months, the large number of proposals and
preliminary agreements currently being prepared, and the apparent
steadily increasing interest in Bion NMS systems in the large
animal agriculture area. Management's sales plans at present
project a level of 34 systems under contract containing 24,270
BionAnimals by June 30, 1997, the end of the current fiscal year.
If these targets are met and the systems are brought into
production as anticipated, after appropriate start-up period,
BionSoil in the approximate amount of 240,000 cubic yards should be
available for harvest and preparation for sale.
Initial BionSoil harvests have been made from installations in
Florida, New York, North Carolina and Washington. During the last
twelve months approximately 10,363 cubic yards have been harvested.
Of that amount, 2,000 cubic yards of BionSoil were sold in bulk at
prices ranging from $4.00 to $20.00 per yard. Small quantities of
processed and bagged BionSoil, in 20 to 75 pound bags, have been
sold to organic farmers, nurseries, and at farmers markets and
green markets in New York and Florida for the equivalent of $40.00
to $100.00 per cubic yard. Additionally, processed and bagged
BionSoil has been sold to nursery growers and organic growers in
Florida (in 75 pound bags) for the equivalent of $80.00 per cubic
yard. During the quarter ended March 31, 1997, the first
distribution to retail outlets was initiated with Agway stores in
Western New York. Through March 31, 1997 deliveries averaging six
pallets per store had been 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). The average selling price
during the quarter ended March 31, 1997 for bulk, unprocessed
BionSoil was $12.71 per cubic yard, and for processed and bagged
BionSoil was $65.18 per cubic yard. Note, however, that a large
part of this BionSoil was from first harvests of various systems
which, due to start-up issues, yield a lower quantity of high
quality product.
Market Size
The sales goal outlined above represents aggressive growth for the
Company. Although an examination of the size of the target markets
for system sales and installations and BionSoil sales shows that
the percent of total market penetration which these goals represent
are very modest, there can be no assurance that the Company will be
successful in achieving its targeted goals.
In the area of system sales, the Company has analyzed the 1992 U.S.
Department of Agriculture Census statistics (the most recent
information available from the U.S. Department of Agriculture) and
developed the data presented below for the target market segments.
The Company has analyzed the economics of system installation and
operation as it relates to the size of farms, and based on this
analysis has established a potential target universe of
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 1997 system sales (and the
associated BionAnimals) would represent approximately a 0.17%
market penetration in fiscal 1997.
The potential market for BionSoil and the various products that the
Company will blend using BionSoil has been described and quantified
in a study by Batelle ("Compost: United States Supply and Demand
Potential" in Biomass and Bioenergy Vol. 3, Nos 3-4, pp. 281-299,
1992). In that analysis, Batelle calculates that the demand for
compost and compost-like products (including products ranging from
manures to composted organic wastes to manufactured potting soils
and soil enhancers) in the U.S. alone is in excess of one billion
cubic yards per year. On the basis of this total potential market,
the BionSoil that the Company anticipates will be produced from the
24,270 BionAnimals if the Company reaches its fiscal year 1997
sales target (in excess of 240,000 cubic yards) would result in a
0.02% market penetration.
Based on current pricing experience, a review of prices for soils
and soil-enhancing products in the market, target market segment
strategies being developed, and limited sales to date, the Company
believes that BionSoil will sell at no less than $10 per cubic yard
when sold unprocessed in bulk, and will sell for higher prices when
processed and bagged, prices which may rise to $100 per cubic yard
(or greater). Additionally, based on actual costs experienced in
BionSoil harvesting and processing to date, and projected costs as
volume levels increase to the forecast levels, the Company has
established projected costs for the various levels of processing
required to sell BionSoil products. Therefore, given the contract
terms and projected costs of production and sales, the potential
return to the Company from BionSoil products sales alone has been
calculated for a series of potential price points (and the implied
processing levels required to achieve the products to be sold at
these price points).
<TABLE>
<CAPTION>
Table 1
BionSoil selling Annual gross margin
price per cubic Bion per cubic per Bion
yard Expenses yard Animal
<S> <C> <C> <C>
$ 10.00 $ 8.00 $ 2.00 $ 20.00
20.00 13.00 7.00 70.00
40.00 28.00 12.00 120.00
60.00 37.00 23.00 230.00
80.00 40.00 40.00 400.00
100.00 43.00 57.00 570.00
</TABLE>
Income from BionSoil sales is anticipated to begin in an average of
one and a half to two years after the signing of an agreement for a
Bion NMS system. These gross margins would be expected to be
repeated each year as long as the installations remain in
operation. No fees for system installation, licensing, or
management are included in these projections.
If the Company is successful in bringing targeted systems on line
producing BionSoil within the 12 to 15 month start-up time frame,
and is successful in realizing a target average sales price of $40
per cubic yard (starting in fiscal year 1998), each BionAnimal
would contribute $400 of revenue per year to the Company, resulting
in gross margins of $120 per year. Under the terms of most Bion
NMS agreements this contribution to revenue and gross margin is
anticipated to continue for at least a 15-year period. If the net
present value (discounted at 10%) of this gross margin cash flow is
calculated for this 15-year period, it shows that each BionAnimal
is anticipated to have approximately $950 net present value to the
Company.
Table 2, below, summarizes this net present value calculation for
the BionSoil selling prices reflected in Table 1, above.
<TABLE>
<CAPTION>
Table 2
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 expects that contract
fees, independent of BionSoil revenues, will be sufficient to cover
direct expenses (such as system design, permitting support,
construction oversight and initial system operation) related to
these system installations. Therefore, once a sufficient number of
systems are under contract and the BionSoil production is on line,
the Company is expected to achieve financial break-even.
Even though the Company is extremely small at present, has not yet
developed substantial market penetration, needs to raise additional
capital, and has (and is continuing to accrue) losses to date, the
potential return based on the Company's growth plans is apparent if
the Company is successful in achieving its targets.
As the above discussion includes forward looking statements made in
reliance upon the provisions of Rule 175 promulgated under the
Securities Act of 1933, readers are cautioned that, although
management believes it currently has a reasonable good faith basis
for disclosing the substance of some of its internal projections to
the public at this time, there can be no assurance given that the
Company will ever be successful in achieving any of its stated
goals. As stated previously, the ultimate realization of most (if
not all) of the company's goals will require significant
expenditures of funds which as of this date are not currently
available to the Company.
It is currently anticipated that the selling and installation of
additional BionSoil Systems will require the Company to hire
additional personnel, make significant capital expenditures and
generally increase its overhead. Moreover, the marketing and sale
of BionSoil products will require the implementation of a
distribution network of wholesalers and/or retailers and a
transportation system for delivery of the product to the intended
recipients. Additional expenditures for personnel and equipment
will be necessary to harvest, process, package, sell and deliver
the product. The projections stated by management assume that the
Company will be successful in obtaining the requisite funds on
commercially reasonable terms and that the other stated obstacles
will be successfully overcome in the process of making sales of
products in the future.
As the Company has never operated at a profit and has a negative
net worth at the present time, its ability to successfully confront
even the currently identified challenges which lie ahead in meeting
its stated goals is far from certain. It is likely that the
Company will face additional challenges which have not as yet even
been identified. In the event the Company is not able to obtain
sufficient outside funding to accomplish its goals within the time
periods indicated, the goals will not be met. In the event the
Company is not able to successfully overcome the other stated
obstacles in the process of making future sales within the time
periods indicated, the goals will not be met. As the Company's
operations are not currently profitable, readers are further
cautioned that, if the Company is not successful in obtaining
outside funding in an amount sufficient for it to meet its
operating expenses at its current level, the Company's continued
existence is uncertain.
OTHER INFORMATION
PART II
ITEM 1. Legal Proceedings.
The Company knows of no material pending legal proceedings to
which the Company (or the Subsidiary) is a party or to which any of
its systems is the subject and no such proceedings are known to the
Company.
ITEM 2. Changes in Securities.
(c) The following securities were sold in the quarter ended March
31, 1997 without registering the securities under the
Securities Act.:
* 66,250 shares of restricted and legended Common Stock to
nine private investors in a private offering underwritten
by Global Financial Group, Inc. ("GFG") for an aggregate
gross amount of $265,000 of which $$26,500 was paid to GFG
as commissions. These securities were sold in privately
negotiated transactions pursuant to Sections 3(b), 4(2)
and/or other applicable provisions of the Securities Act of
1933 as amended.
* 1,500 shares of restricted and legended Common Stock to
two private investors in a privately negotiated
transactions for an aggregate amount of $6,000. These
securities were sold in privately negotiated transactions
pursuant to Sections 3(b), 4(2) and/or other applicable
provisions of the Securities Act of 1933 as amended.
* 2,957 shares of restricted and legended Common Stock to
one private investor under the terms of Section 5., Grant
of Private Preemptive Rights, contained in the investor's
Subscription and Investment Representation Agreement dated
May 21, 1992 for an aggregate amount of $8,576.80. These
securities were sold in a privately negotiated transaction
pursuant to Sections 3(b), 4(2) and/or other applicable
provisions of the Securities Act of 1933 as amended.
* 2,279 shares of restricted and legended Common Stock to
four employees in lieu of cash for services rendered valued
at, in aggregate, $9,813.08. These securities were sold in
privately negotiated transactions pursuant to Sections
3(b), 4(2) and/or other applicable provisions of the
Securities Act of 1933 as amended.
* 14,678 shares of restricted and legended Common Stock to
a shareholder for rent and services valued in aggregate at
$58,710. These securities were sold in privately
negotiated transactions pursuant to Sections 3(b), 4(2)
and/or other applicable provisions of the Securities Act of
1933 as amended.
The shares of the Company's Common Stock which were issued
pursuant to the transactions set forth above were issued in
reliance upon the exemption provided by Section 4(2) of the
Securities Act of 1933, as amended. Each of the persons to
whom such securities were issued made an informed investment
decision based upon negotiation with the Company (either by
themselves or through the underwriter for the
OTHER INFORMATION
(cont'd.)
Company's private placement) and was provided with appropriate
offering documents and access to material information
regarding the Company. The Company believes that such persons
had knowledge and experience in financial and business matters
such that they were capable of evaluating the merits and risks
of the acquisition of the Company's Common Stock in connection
with these transactions. All certificates representing such
common shares bear an appropriate legend restricting the
transfer of such securities, except in accordance with the
Securities Act of 1933, as amended, and stop transfer
instructions have been provided to the Company's transfer
agent in accordance therewith.
ITEM 3. Defaults Upon Senior Securities. None
ITEM 4. Submission of Matters to a Vote of Security Holders.
None
ITEM 5. Other Information. None
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits - none
(b) Reports on Form 8-K:
Form 8-K (dated January 2, 1997) reporting on items 5 & 7
SIGNATURE
Pursuant to the requirements of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned thereunder duly
authorized.
Bion Environmental Technologies, Inc.
/s/ M. Duane Stutzman
M. Duane Stutzman
Chief Financial Officer
Dated: May 2, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 3-MOS
<FISCAL-YEAR-END> JUN-30-1997 JUN-30-1997
<PERIOD-END> MAR-31-1997 MAR-31-1997
<CASH> 11,025 11,025
<SECURITIES> 0 0
<RECEIVABLES> 47,855 47,855
<ALLOWANCES> 0 0
<INVENTORY> 229,750 229,750
<CURRENT-ASSETS> 299,355 299,355
<PP&E> 231,950 231,950
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 663,032 663,032
<CURRENT-LIABILITIES> 767,826 767,826
<BONDS> 0 0
0 0
95,482 95,482
<COMMON> 4,693,336 4,693,336
<OTHER-SE> 346,718 346,718
<TOTAL-LIABILITY-AND-EQUITY> 663,032 663,032
<SALES> 0 0
<TOTAL-REVENUES> 99,646 37,839
<CGS> 396,169 110,467
<TOTAL-COSTS> 1,636,801 471,100
<OTHER-EXPENSES> 118,855 523,068
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 212,811 71,477
<INCOME-PRETAX> (1,788,621) (667,167)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (1,788,621) (667,167)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,788,621) (667,167)
<EPS-PRIMARY> (.97) (.34)
<EPS-DILUTED> (.97) (.34)
</TABLE>
