SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED
September 30, 1999 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 executive offices) (Zip Code)
(303) 294-0750
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No___
The number of shares outstanding of registrant's classes of common stock,
as of November 10, 1999:
Common Stock, No Par Value, 10,302,381
Transitional Small Business Disclosure Format (Check one): Yes ___ No X
<PAGE>
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION PAGE NO.
ITEM 1 FINANCIAL STATEMENTS
Consolidated Balance Sheets:
June 30, 1999 and
September 30, 1999.......................3
Consolidated Statements of Operations:
For the Three Month Periods Ended
September 30, 1998 and
September 30, 1999.......................4
Consolidated Statement of Changes in
Stockholders Equity for the Period June 30,
1999 through September 30, 1999...............5
Consolidated Statements of Cash Flows:
For the Three Month Periods Ended
September 30, 1998 and
September 30, 1999.................... 6-7
Notes to Consolidated Financial
Statements..................................8-13
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.................................13
PART II OTHER INFORMATION
ITEMS 1-6 .....................................17-18
<PAGE>
PART I Financial Information
ITEM 1. Financial Statements
BION ENVIRONMENTAL TECHNOLOGIES, INC.
Consolidated Balance Sheet
<TABLE>
<CAPTION>
September 30, June 30,
1999 1999
------------ ------------
(Unaudited) (Audited)
Assets
<S> <C> <C>
Current assets
Cash and cash equivalents .............................. $ 21,563 $ 55,583
Accounts receivable (Net of allowance
of $2,000) ............................................ 60,932 60,452
Contract receivables (net of allowance
of $10,000) ........................................... 11,310 33,310
Mortgage Receivables held for sale ..................... 260,000
Prepaid consulting service, current portion ............ 240,000 240,000
Total current assets ........................... 333,805 649,345
------------ ------------
Property and equipment
Computers and equipment ................................ 316,967 316,967
Accumulated depreciation ............................... (160,260) (146,207)
------------ ------------
156,707 170,760
Other assets
Prepaid consulting service, long-term
portion ............................................... 300,000 360,000
Other prepaid assets ................................... 193,235 86,735
Patents, net ........................................... 39,026 39,834
Deposits and other ..................................... 11,072 10,557
------------ ------------
Total other assets ............................. 543,333 497,126
------------ ------------
Total assets .............................................. $ 1,033,845 $ 1,317,231
============ ============
Liabilities and Stockholders' Deficit
Current liabilities
Accounts payable ....................................... $ 347,704 $ 340,202
Accounts payable - related party ....................... 7,499 17,924
Related party notes payable and accrued
interest .............................................. 216,596 210,589
Capital lease obligations .............................. 48,340 55,688
Accrued expenses ....................................... 26,098 31,740
Accrued payroll ........................................ 386,628 319,461
------------ ------------
Total current liabilities ...................... 1,032,865 975,604
Long-term liabilities
Related party notes payable and accrued
interest .............................................. 3,124,582 2,478,264
Related party note payable and accrued
interest for consulting services ....................... 653,755 634,955
Capital lease obligations .............................. 31,695 37,196
------------ ------------
Total liabilities .............................. 4,842,897 4,126,019
------------ ------------
Commitments and contingencies
Stockholders' deficit
Common stock, no par value, 100,000,000
shares authorized, 10,231,631 shares issued
and outstanding ....................................... 12,304,606 12,060,705
Common stock subscribed ................................ 60,000
Accumulated deficit .................................... (16,113,658) (14,929,493)
------------ ------------
Total stockholders' deficit .................... (3,809,052) (2,808,788)
------------ ------------
Total liabilities and stockholders' deficit ............... $ 1,033,845 $ 1,317,231
============ ============
</TABLE>
See notes to consolidated financial statements.
- 3 -
<PAGE>
BION ENVIRONMENTAL TECHNOLOGIES, INC.
Consolidated Statements of Operations
Three Months Ended
September 30,
------------------------------
1999 1998
------------ ------------
Soil sales ............................. $ 43,948 $ 28,372
System contract revenues ............... -- 35,500
------------ ------------
Total revenues ......................... 43,948 63,872
Contract costs
99,463 122,841
------------ ------------
Gross (loss) ........................... (55,515) (58,969)
General and administrative expenses .... 879,726 382,475
Research and development
88,816 66,999
------------ ------------
Loss from operations ................... (1,024,057) (508,443)
Other income (expense)
Interest income ..................... 3,473 17
Interest expense .................... (111,089) (15,148)
Other income/expense, net ........... 4,758 (2,659)
Loss of Sale of Mortgage Receivable
(57,250) --
------------ ------------
Net loss and comprehensive loss ........ $ (1,184,165) $ (526,233)
============ ============
Basic loss per common share ............ $ (0.12) $ (0.06)
============ ============
Weighted common shares outstanding ..... 10,200,378 8,833,960
============ ============
See notes to consolidated financial statements.
- 4 -
<PAGE>
BION ENVIRONMENTAL TECHNOLOGIES, INC.
Consolidated Statement of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
Common Stock
---------------------------- Stock Accumulated
Shares Amount Subscribed Deficit Total
----------- ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Balances at June 30, 1999 ..... 10,092,795 $ 12,060,705 $ 60,000 $(14,929,493) $ (2,808,788)
Conversion of common stock
subscriptions to Notes Payable -- -- (60,000) -- (60,000)
Issuance of common stock
for cash ...................... 66,667 100,000 -- -- 100,000
Issuance of common stock
for services ................. 72,169 143,901 -- -- 143,901
Net (loss) for the period ended
September 30, 1999 ........... -- -- -- (1,184,165) (1,184,165)
----------- ------------ ----------- ------------ ------------
Balances at
September 30, 1999 ........... 10,231,631 $ 12,304,606 -- $(16,113,658) $ (3,809,052)
=========== ============ =========== ============ ============
</TABLE>
See notes to consolidated financial statements.
- 5 -
<PAGE>
BION ENVIRONMENTAL TECHNOLOGIES, INC.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Three Months Ended
September 30,
----------------------------
1999 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities
Net loss ..................................... $(1,184,165) $ (526,233)
----------- -----------
Adjustments to reconcile net loss to net cash
used in operating activities -
Depreciation and amortization .............. 14,053 14,044
Issuance of stock for services,
compensation and interest ................. 143,901 10,725
Issuance of subscribed stock for services .. (60,000) 11,500
Issuance of note payable for consulting
services .................................. 60,000 --
Loss on sale of mortgage receivables ....... 57,250 --
Changes in assets and liabilities -
Receivables .............................. 21,520 (863)
Prepaid expenses and other ............... (107,015) 29
Accounts payable ......................... (2,923) 34,832
Accrued liabilities....................... 61,525 51,493
----------- -----------
Net cash used in operating activities .. (995,854) (404,473)
----------- -----------
Cash flows from investing activities
Purchases of equipment ....................... -- (2,969)
Investment in patents ........................ 808 --
----------- -----------
Net cash (used in) provided by
investing activities .................. 808 (2,969)
----------- -----------
Cash flows from financing activities
Proceeds from sale of mortgages .............. 202,750 --
Proceeds from notes payable .................. 671,125 175,000
Proceeds from stock and stock subscription
issuances ................................... 100,000 161,674
Proceeds from exercise of options and warrants -- 82,500
Payments on capital lease obligations ........ (12,849) (17,006)
----------- -----------
Net cash provided by financing
activities ............................ 961,026 402,168
----------- -----------
Net increase in cash and cash equivalents ...... (34,020) (5,274)
Cash and cash equivalents at beginning of period 55,583 19,104
----------- -----------
Cash and cash equivalents at end of period ..... $ 21,563 $ 13,830
=========== ===========
</TABLE>
See notes to consolidated financial statements.
- 6 -
Continued on following page.
<PAGE>
BION ENVIRONMENTAL TECHNOLOGIES, INC.
Consolidated Statements of Cash Flows
Continued from previous page.
Supplemental disclosure of cash flow information
Cash paid during the quarter for interest was $3,129 (1999)and $4,437
(1998).
Supplemental disclosures of non-cash financing activities for the quarter ended
September 30, 1999 -
Converted $310,455 of accounts payable to notes payable. Converted $78,333
in accrued expenses into a note payable. Converted $99,330 in accrued
interest into notes payable
Supplemental disclosures of non-cash financing activities for the quarter ended
September 30, 1998-
Converted $1,500 of common stock subscribed into 300 shares of common stock.
See notes to consolidated financial statements.
- 7 -
<PAGE>
BION ENVIRONMENTAL TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements
Note 1 - Summary of Accounting Policies
The summary of the significant accounting policies of Bion Environmental
Technologies, Inc. ("Company") is incorporated by reference to the Company's
annual report on Form 10-KSB/A at June
30, 1999.
The accompanying unaudited financial statements and disclosures reflect all
adjustments (all of which are normal recurring accruals) in the ordinary course
of business which in the opinion of management are necessary for a fair
presentation of the results of operations, financial positions, and cash flow of
the Company. The results of operations for the periods indicated are not
necessarily indicative of the results for a full year.
Note 2 - Continued Operations
The accompanying financial statements have been prepared on a going concern
basis which contemplates the realization of assets and liquidation of
liabilities in the ordinary course of business. The Company has not yet begun
earning significant revenue from its planned principal operations. Consequently,
as of September 30, 1999, the Company has incurred accumulated losses totaling
$16,113,658, resulting in an accumulated stockholders' deficit of $3,809,052.
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(TM)
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 - Capital Structure
Because the Company has a relatively complex capital structure the
following capital structure details are set forth:
Common Stock
As of November 10, 1999 the Company had 10,302,381 shares of Common Stock
issued and outstanding.
Options
Vesting Date Expires
-------------- ---------
Directors
$1.55 11,112 Vested 08/19/02
$2.04 11,112 Vested 08/19/02
$2.91 11,112 Vested 11/17/03
$1.61 10,000 Vested 08/04/04
-------
Total Directors 43,336
Employees (Vested) $2.50 40,000 Vested 12/31/01
$2.70 27,778 Vested 12/31/02
$3.04 1,112 Vested 01/28/01
$3.60 3,334 Vested 03/03/00
$3.60 1,019 Vested 03/18/00
$3.60 2,693 Vested 05/17/00
$3.60 7,750 Vested 06/30/00
$3.60 19,445 Vested 08/01/00
$3.60 9,935 Vested 12/31/01
$3.60 19,525 Vested 12/31/02
$3.72 1,112 Vested 08/31/00
$4.05 1,112 Vested 11/30/00
$5.40 1,600 Vested 03/03/00
$5.40 1,226 Vested 05/17/00
$5.40 4,276 Vested 06/30/00
$5.40 15,485 Vested 12/31/01
$5.63 1,112 Vested 05/31/00
$7.20 37,753 Vested 12/31/01
$9.00 11,112 Vested 12/31/01
-------
Total Vested 207,379
Employees (Non-vested) $3.60 26,251 04/30/00 12/31/02
$3.60 26,251 04/30/01 12/31/02
$3.60 26,251 04/30/02 12/31/02
$3.60 10,000 08/01/00 12/31/02
$3.60 10,000 08/16/99 12/31/02
$5.40 10,613 11/19/99 12/31/02
$5.40 1,556 03/04/00 12/31/02
$5.40 1,038 03/16/00 12/31/02
$5.40 1,464 04/01/00 12/31/02
$5.40 1,038 06/01/00 12/31/02
$5.40 10,000 08/01/00 12/31/02
$5.40 1,038 09/01/00 12/31/02
$7.20 770 12/16/99 12/31/01
$7.20 1,334 02/03/00 12/31/01
$7.20 1,464 04/01/00 12/31/02
$7.20 18,381 04/30/00 12/31/02
$7.20 1,926 08/04/00 12/31/02
$7.20 1,482 08/11/00 12/31/02
$7.20 10,613 11/19/00 12/31/02
$7.20 1,556 03/04/01 12/31/02
$7.20 1,038 03/16/01 12/31/02
$7.20 18,381 04/30/01 12/31/02
$7.20 1,038 06/01/01 12/31/02
$7.20 10,000 08/16/01 12/31/02
$7.20 1,038 09/01/01 12/31/02
$7.20 18,381 04/30/02 12/31/02
$7.20 10,000 08/16/02 12/31/02
$13.50 28,898 04/30/00 12/31/02
$13.50 28,898 04/30/01 12/31/02
$13.50 28,898 04/30/02 12/31/02
Total Non-vested 309,596
Total Employees and
Directors 560,311
Warrants
As of November 10, 1999, the Company has the following warrants outstanding:
Warrant Shares Expiration Date Exercise Price
- ---------- --------- --------------- --------------
Class G-5.1 1,115 (1) 2.70
Class G-5.2 919 (2) 2.70
Class G-6 3,148 (3) 5.40
Class G-8 27,779 (4) 5.40
Class H-1 11,112 (5) 4.50
Class H-2 16,112 (6) 2.70
Class H-9 11,112 (7) 9.00
Class H-9.1 11,112 (8) 11.25
Class H-9.2 11,112 (9) 7.20
Class H-9.3 11,112 (10) 13.50
Class H-9.4 11,112 (11) 5.40
Class H-10 18,519 (12) 3.60
Class H-11 18,519 (13) 3.60
Class H-12 27,778 (14) 2.70
Class H-14 18,519 (15) 3.60
Class H-15.1 26,251 (16) 3.60
Class H-15.2 26,251 (17) 3.60
Class H-15.3 26,251 (18) 3.60
Class H-15.4 18,381 (19) 7.20
Class H-15.5 18,381 (20) 7.20
Class H-15.6 18,381 (21) 7.20
Class H-15.7 28,898 (22) 13.50
Class H-15.8 28,898 (23) 13.50
Class H-15.9 28,898 (24) 13.50
Class H-16 412,000 (25) 2.25
Class H-17 18,519 (26) 7.20
Class I-1 4,167 (27) 5.40
Class X 4,428,969 (28) 8.00
Class Z 3,588,224 (29) 13.50
Class AA.01 15,000 (30) 5.40
----------- --------------
8,886,549 $ 2.25-13.50
=========== ==============
(1) Class G-5.1 warrants may be exercised to purchase 1,115 shares of common
stock for a 60 month period beginning January 22, 1996 and ending January
21, 2001.
(2) Class G-5.2 warrants may be exercised to purchase 919 shares of common
stock for a 60 month period beginning September 13, 1996 and ending
September 12, 2001.
(3) Class G-6 warrants may be exercised to purchase 3,148 shares of common
stock for a 60 month period beginning April 21, 1997 and ending April 20,
2002.
(4) Class G-8 warrants may be exercised to purchase 27,779 shares of common
stock for a 37 month period beginning June 5, 1997 and ending June 30,
2000.
(5) Class H-1 warrants may be exercised to purchase 11,112 shares of common
stock for a 60 month period beginning August 21, 1996 and ending August
20, 2001.
(6) Class H-2 warrants may be exercised to purchase 16,112 shares of common
stock for a 60 month period beginning August 21, 1996 and ending August
20, 2001.
(7) Class H-9 Warrants may be exercised to purchase 11,112 shares of common
stock for a 47 month period beginning February 1, 1997 and ending December
31, 2001.
(8) Class H-9.1 Warrants may be exercised to purchase 11,112 shares of common
stock for a 47 month period beginning February 1, 1997 and ending December
31, 2001.
(9) Class H-9.2 Warrants may be exercised to purchase 11,112 shares of common
stock for a 47 month period beginning February 1, 1997 and ending December
31, 2001.
(10) Class H-9.3 Warrants may be exercised to purchase 11,112 shares of common
stock for a 47 month period beginning February 1, 1997 and ending December
31, 2001.
(11) Class H-9.4 Warrants may be exercised to purchase 11,112 shares of common
stock for a 47 month period beginning February 1, 1997 and ending December
31, 2001.
(12) Class H-10 may be exercised to purchase 18,519 shares of common stock for
a 50 month period beginning November 2, 1998 and ending December 31, 2002.
(13) Class H-11 may be exercised to purchase 18,519 shares of common stock for
a 49 month period beginning December 1, 1998 and ending December 31, 2002.
(14) Class H-12 may be exercised to purchase 27,778 shares of common stock for
34 month period beginning March 1, 1999 and ending December 31, 2002.
(15) Class H-14 may be exercised to purchase 18,519 shares of common stock for
a 25 month period beginning December 1, 1999 and ending December 31, 2002.
(16) Class H-15.1 may be exercised to purchase 26,251 shares of common stock
for a 32 month period beginning April 30, 2000 and ending December 31,
2002.
(17) Class H-15.2 may be exercised to purchase 26,251 shares of common stock
for a 20 month period beginning April 30, 2001 and ending December 31,
2002.
(18) Class H-15.3 may be exercised to purchase 26,251 shares of common stock
for a 8 month period beginning April 30, 2002 and ending December 31,
2002.
(19) Class H-15.4 may be exercised to purchase 18,381 shares of common stock
for a 32 month period beginning April 30, 2000 and ending December 31,
2002.
(20) Class H-15.5 may be exercised to purchase 18,381 shares of common stock
for a 20 month period beginning April 30, 2001 and ending December 31,
2002.
(21) Class H-15.6 may be exercised to purchase 18,381 shares of common stock
for a 8 month period beginning April 30, 2002 and ending December 31,
2002.
(22) Class H-15.7 may be exercised to purchase 28,898 shares of common stock
for a 32 month period beginning April 30, 2000 and ending December 31,
2002.
(23) Class H-15.8 may be exercised to purchase 28,898 shares of common stock
for a 26 month period beginning April 30, 2001 and ending December 31,
2002.
(24) Class H-15.9 may be exercised to purchase 28,898 shares of common stock
for a 8 month period beginning April 30, 2002 and ending December 31,
2002.
(25) Class H-16 may be exercised to purchase 412,000 shares of common stock for
a 24 month period beginning January 1, 2000 and ending December 31, 2001.
(26) Class H-17 may be exercised to purchase 18,519 shares of common stock for
a 25 month period beginning December 1, 2000 and ending December 31, 2002.
(27) Class I-1 warrants may be exercised to purchase 4,167 shares of common
stock for approximately a 42 month period beginning June 9, 1998 and
ending December 31, 2001.
(28) Class X may be exercised to purchase 4,428,969 shares of common stock for
a 24 month period beginning January 1, 2000 and ending December 31, 2001.
(29) Class Z warrants may be exercised to purchase 3,588,224 shares of common
stock for a 24 month period beginning January 1, 2000 and ending December
31, 2001.
(30) Class AA.01 warrants may be exercised to purchase 15,000 shares of common
stock for approximately a 28 month period beginning August 12, 19999 and
ending December 31, 2001.
At November 10, 1999, there were warrants exercisable to purchase 255,284 shares
of common stock.
Note 4 - Subsequent Events
During the month of October 1999 we issued 70,750 shares of free trading
stock under our Fiscal Year 1994 Incentive Plan to six employees.
For the period October 1, 1999 through November 10, 1999, we received
$171,827 of additional money from a shareholder. The shareholder received
171,827 Class X warrants and the total principal and interest can be converted
into restricted stock at $1.80 per share.
ITEM 2. Management's Discussion and Analysis
The discussion below contains forward-looking statements (denoted with
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. This discussion is qualified in its entirety by the risk
factors discussed herein.
Management's Discussion of Financial Condition and Results of Operations
Financial Condition and Results of Operations
The financial statements contained in this 10-QSB show more than
$12,300,000 being invested in Bion as of September 30, 1999. We have a negative
net worth of $3,809,502, cumulative deficit of $16,113,658, limited current
revenues, and substantial current operating losses. (Note that the negative net
worth is approximately equal to the outstanding long-term debt to management and
major shareholders, the largest part of which is convertible into Bion's
restricted and legended common stock.) Our operations are not currently
profitable; therefore, readers are further cautioned that our continued
existence is uncertain if we are not successful in obtaining outside funding in
an amount sufficient for us to meet our operating expenses at our current level.
Management plans to continue raising additional capital to fund operations until
Bion system and BionSoil sales are sufficient to fund operations.
Bion NMS system and BionSoil sales require additional expenditures. Our
system sales require additional personnel and significant capital expenditures,
which will generally increase our overhead. BionSoil product sales and marketing
requires wholesaler and retailer distribution networks (which may require
permitting in some locations) and additional expenditures for personnel and
equipment to harvest, process, package, sell, and deliver our products. We are
continually negotiating with independent third parties and related parties to
obtain the necessary additional funding for us. Although management believes
that there is a reasonable basis to remain optimistic, no assumption can be made
that we will be able to successfully attain profitable operations and/or raise
sufficient capital to sustain operations.
Liquidity and Capital Resources
Our Consolidated Balance Sheet shows Current assets of $333,805 and Total
assets of $1,033,845. Our Current and total liabilities as of September 30, 1999
are $1,032,865 and $4,842,897, respectively. Total assets decreased by $283,386
from June 30, 1999. This change is primarily attributable to the sale of the
mortgage receivables (see our 10-KSB/A dated June 30, 1999). Cash and cash
equivalents decreased $34,020 from June 30, 1999. Our current ratio (current
assets / current liabilities) is 0.32 as of September 30, 1999 as compared to
0.67 as of June 30, 1999.
Total liabilities increased $716,878 in the three month period ended
September 30, 1999. Accrued salaries and notes payable increased by $67,167 and
$665,118, respectively. The notes payable increase were to related parties or
employees.
Our Stockholders' Equity account reflects a total of 138,836 shares of
common stock issued in the quarter ended September 30, 1999. We issued 66,667
shares of common stock for cash ($100,000) and 72,169 shares of common stock for
services ($143,901). Of these shares, we issued a total of 74,502 shares of
legended and restricted common stock and 64,334 shares of unrestricted stock.
The Company issued a note to an employee and as part of the note reclassified
$60,000 of subscribed stock into the note payable.
Results of Operations
Comparison of the Three Months Ended September, 30 1999 with the Three
Months Ended September 30, 1998
Revenue in the three months ended September 30, 1999 was $43,948 compared
to $63,872 for the corresponding three month period in 1998, a decrease of
$19,924. Contract costs were lower in the 1999 three month period by $23,378 due
to decreased expenses associated with system design and New York BionSoil
processing. The above resulted in a gross loss for the period ended September
30, 1999 of $55,515 as compared to a gross loss of $58,969 for the same three
month period in 1998. No system sales occurred in the quarter ended September
30, 1999, due to hog industry and regulatory changes (see explanation below).
General and administrative expenses were higher by $497,251 due to an
increase in employee compensation ($107,000), professional expenses ($167,000),
and investor relation expenses ($193,000).
The Company recorded $111,089 in interest expense on its notes payable and
$88,816 in research and development costs. The Company also recorded a loss of
$57,250 on the sale of the mortgage receivables in the quarter. As a result of
the above, the Company recorded a net loss of $1,184,165 in the three month
period ended September 30, 1999, compared to a net loss of $526,233 for the
three month period ended September 30, 1998.
The Company will need to increase sales significantly to obtain
profitability.
Trends, Events and Uncertainties
Liquidity
We continue to have difficulty raising finances for operations. Funding
for operations occurs primarily through equity financing. The following
identifies cash sources over the past two fiscal years.
<TABLE>
<CAPTION>
Convertible
Debt/Notes Stock Revenue (cash) Options Total
----------- -------- ---------------- -------- ----------
<S> <C> <C> <C>
LTLK $1,503,750 $282,750 $1,786,500
Other $300,000 $1,039,826 $577,407 $889,938 $2,807,171
Total $1,803,750 $1,322,576 $577,407 $889,938 $4,593,671
</TABLE>
LoTayLingKyur, Inc. ("LTLK") has been the primary funding agent for Bion
over the past year. LTLK is a major shareholder that continues to finance our
operations. Without this funding the company would not be able to continue as a
going concern.
The Hog Market Impact
Our system sales growth was negatively impacted as a result of the recent
extended deep depression in hog prices, which started in 1998. Prices reached a
low of $9.00 per hundred weight in December 1998, down from $43.00 per hundred
weight in December 1997. While these prices have trended up from the December
1998 low point, they still remain well below historic levels for the industry.
These depressed prices are below the break-even point for many hog growers. The
price drop and resulting hog industry losses have caused hog producers to reduce
general and capital expenditures and curtail their expansion plans. This
industry change has had a significant negative impact on our plans to sign
additional contracts within the hog industry and has caused some growers to put
systems covered by existing contracts on temporary hold.
Management believes that over the next several quarters, if the
strengthening in hog prices continues, it will result in more contracts being
signed and work resuming (or commencing) on some existing contracts that have
been slowed or put on hold.*
As a result of the problems facing the hog industry, we have increased our
focus on expanding Bion's presence in the dairy farm system markets to offset
the reduction in hog system sales. To support this shift, as well as to gain
access to the large western United States market, we have recently added sales
personnel in California and the Pacific Northwest. Management believes that this
recent expansion in conjunction with increasing hog prices may assist us in
accelerating our system sales pace.*
Regulatory Environment
We have experienced an adverse impact in selected regions due to changes
and uncertainties in regulatory positions. For example, Colorado voters passed
an amendment in November 1998 (Amendment 14) that places significant constraints
on large hog farms in the state. The extended election campaign and subsequent
rule making process completely stopped our progress on system contracts for
350,000 hogs on farms in Eastern Colorado. It is not likely that work will
resume on this contract, nor for us to acquire significant additional contracts
in Colorado, until this situation is completely resolved and a consistent
regulatory practice is established.* We face a similar slow down of new contract
activity in North Carolina as the result of a state wide moratorium on
construction of new or expanded hog farms (retrofits of waste handling systems
on existing farms are proceeding) which may be extended. Numerous other states,
including without limitation, Georgia, Minnesota, Florida, California, and New
York have adopted or are considering new regulations on large animal raising
facilities. Additionally, litigation is in process in a number of states. The
short term impact on our business has been negative but management believes the
trend to stricter regulations will help our business in the long run.*
There is growing activity at the state and federal levels to protect the
environment from pollution caused by animal raising facilities. Although future
regulations may benefit us in obtaining system contracts, the current ambiguity
in the regulatory environment is causing farmers to delay implementation of
waste treatment technologies.* For example, on March 9, 1999, Vice President
Gore announced a federal strategy to decrease non-point source pollution of
lakes, rivers, and streams caused by large livestock facilities. A joint effort
by the Environmental Protection Agency and the Department of Agriculture
developed the UNSAFO (Unified National Strategy for Animal Feeding Operations).
UNSAFO will require large animal facilities to obtain Clean Water Act discharge
permits and to develop nutrient management plans for animal feeding operations.
UNSAFO will also require integrators, large livestock companies that contract
with smaller operators to raise their animals, to share responsibility for
meeting regulatory requirements. This strategy is not a new regulation nor is it
a substitute for existing Federal regulations; however, it does give an
indication of the potential regulatory environment. In addition, President
Clinton and the EPA have indicated that they are planning on enforcing a
provision of the Clean Water Act that requires states to assess the health of
every body of water within their borders, determine the maximum allowable levels
of pollutants for each one and then parcel out the responsibility for meeting
these goals to individual polluters. This includes point and non-point source
polluters.
This increasing federal environmental activity along with similar changes
at the state and local levels create an unpredictable regulatory environment.
How these changes affect our business can not be identified with any precision
at this time; however, we believe that more stringent requirements on the animal
raising industry will improve our sales outlook.*
Year 2000 Issue
We are aware of the issues associated with the programming code in
existing computer systems as the millennium (year 2000) approaches. The year
2000 problem is pervasive and complex as virtually every computer operation will
be affected in some way by the rollover of the two-digit year value to 00. The
issue is whether computer systems will properly recognize date-sensitive
information when the year changes to 2000. Systems that do not properly
recognize such information could generate erroneous data or cause a system to
fail. After a review of our computer systems and associated software, management
does not believe year 2000 will have a material effect on our operations or
financial condition. We can not predict the impact that year 2000 will have on
our customers and vendors.
Seasonality
Our 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
our systems. However, our 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.
PART II Other Information
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 and Use of Proceeds
The following securities were sold in the three month period ended
September 30, 1999 without registration under the Securities Act of 1933, as
amended:
Warrants
ss. We issued a Class X Warrant to purchase 440,456 shares of restricted and
legended common stock at $8.00 per share. The warrant is exercisable
from January 1, 2000 to December 31, 2001. Bion received cash advances
in consideration for this warrant for use in operations. See Note 4 of
our 10-KSB/A dated June 30, 1999.
ss. We issued a Class AA.01 Warrant to purchase 15,000 shares of restricted
and legended common stock at $5.40 per share. The warrant is exercisable
from August 12, 1999 to December 31, 2001. Bion received consulting
services as consideration for this warrant.
ss. We issued a Class H.16 Warrant to purchase 56,000 shares of restricted
and legended common stock at $8.00 per share. The warrant is exercisable
from January 1, 2000 to December 31, 2001. Bion received employment
services in consideration for this warrant.
Common Stock
ss. 66,667 shares of restricted and legended common stock to one private
investor in a privately negotiated transaction for an aggregate amount
of $100,000.
ss. 7,835 shares of restricted and legended common stock to two consultants
in lieu of cash for services rendered valued at, in aggregate, $12,835.
Convertible Notes
ss. We added $504,230.18 of principal and interest to the convertible notes
listed in Note 4 of Notes to Consolidated Financial Statements in our
10-KSB/A dated June 30, 1999.
The shares of the Company's Common Stock which were issued pursuant to the
transactions set forth above were issued in reliance upon the exemptions from
registration afforded by Sections 3(b), 4(2), and/or other provisions of the
Securities Act of 1933, as amended. Each of the persons to whom such securities
were issued made an informed investment decision based upon negotiation with the
Company and was provided with appropriate offering documents and access to
material information regarding the Company. The Company believes that such
persons had knowledge and experience in financial and business matters such that
they were capable of evaluating the merits and risks of the acquisition of the
Company's Common Stock in connection with these transactions. All certificates
representing such common shares bear an appropriate legend restricting the
transfer of such securities, except in accordance with the Securities Act of
1933, as amended, and stop transfer instructions have been provided to the
Company's transfer agent in accordance therewith.
ITEM 3. Defaults Upon Senior Securities. None
ITEM 4. Submission of Matters to a Vote of Security Holders. None
ITEM 5. Other Information. None
ITEM 6. Exhibits and Reports on Form 8-K.
Index to Exhibits
(2) Plan of acquisition, reorganization, arrangement, liquidation, or
succession. None.
(4) Instruments defining the rights of holders, incl. Indentures. None.
(10) Material contracts. None.
(11) Statement re: computation of per share earnings. None.
(15) Letter on unaudited interim financial information. None.
(18) Letter on change in accounting principles. None.
(19) Reports furnished to security holders. None.
(22) Published report regarding matters submitted to vote. None.
(20) Other documents or statements to security holders. None.
(23) Consents of experts and counsel. None.
(24) Power of attorney. None.
(27) Financial Data Schedule. See below.
(99) Additional exhibits. None.
Reports on Form 8-K
The following current reports on Form 8-K were filed during the quarter
following our 10-KSB/A dated June 30, 1999.
1. Form 8-K dated August 1, 1999: Items 5 & 7 2. Form 8-K dated July 23, 1999:
Items 5 & 7 3. Form 8-K dated May 22, 1999: Items 5 & 7
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunder duly authorized.
Bion Environmental Technologies, Inc.
/s/Jon Northrop
Jon Northrop, Chief Executive Officer
Dated: November 12, 1999
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